OREANDA-NEWS. December 24, 2009. Aeroflot posted its 9M09 IFRS results, showing 9M09 EBITDA of US 430m, 5% higher than BBG consensus estimate for FY09, reported the press-centre of OTKRITIE Financial Corporation.

View: The arrival of a new management team in mid-2009 coincided with the implementation of a cost cutting program that has seen a 7% reduction in the number of employees (mainly administrative departments), which led to a 24% YoY decline in payroll. In addition, the company removed nearly all of its Soviet-era jets from operation, which helped to lower marginal fuel consumption by 4% YoY and to reduce maintenance costs by 17%. Route optimization (loss generating trips were cancelled and replaced by profitable ones) also contributed to a successful performance.

Given these operating numbers, 4Q09 EBITDA could exceed the US183m posted in 4Q08. In October and November 2009 the number of passengers carried was 3% higher YoY, with a passenger load factor was 71.9% on average versus just 70% in October-November 2008. Jet fuel prices in 4Q09 were25% lower YoY. That said, cash flow from operations should be even higher in 4Q09. The only reason why 4Q09 EBITDA could turn out lower YoY is due to one-off accounting events (jets write-offs, subsidiary liquidation).

Valuation and Action: Even under our relatively conservative assumption of 4Q09 EBITDA of US121m, the company looks very cheap, trading on a 2009E EV/EBITDA of just 5x (25% discount to peers) with a 2009E net debt-to-EBITDA at just 2.3x (4x for peers).