3
LATAM Airlines Group S.A. (LTMAY)
- Equity
- Chile
- Industrials
RISK
RETURN
Key risk factors
Very high price volatility
Weak & very vulnerable to price shocks
Limited trading liquidity
Key return factors
Weak growth
Slightly overvalued vs peers
Modest margins and returns
Company profileLATAM Airlines Group S.A., together with its subsidiaries, provides passenger and cargo air transportation services primarily in Chile, Peru, Ecuador, Colombia, Brazil, other Latin American countries, the Caribbean, North America, Europe, and Oceania. As of June 30, 2022, it provided passenger transport services to 133 destinations in 20 countries and cargo services to approximately 141 destinations in 23 countries, with an operating fleet of 300 aircraft and subleased one B767 cargo freighter to a third party. The company was formerly known as LAN Airlines S.A. and changed its name to LATAM Airlines Group S.A. in June 2012. LATAM Airlines Group S.A. was founded in 1929 and is headquartered in Santiago, Chile.
Valuation: Slightly overvalued
Multiple
TTM
NTM
P/E
14.40
11.60
PEG
0.80
-
P/B
14.60
6.50
P/S
0.70
0.70
P/FCF
6.20
-15.80
EV/EBITDA
10.10
-6.90
Based on key historical and expected multiples, the stock is slightly overvalued relative to its peers. In particular, the stock is reasonably priced on P/E, of fair value on EV/EBITDA, and undervalued on P/FCF.
Performance: Mixed
The stock has been falling steadily in the past six months, losing 7% in total. There is no clear price trend compared to its global peers from the same sector and industry (as shown above). It has underperformed this peer group by 15ppts over six months and grown 11ppts slower in the past month. At the same time, the stock's performance relative to its the peers from the same country and sector is different. It underperformed these peers by 18ppts over six months and grew 8ppts slower in the past month. With respect to the stock's valuation against its peers, its overall price performance is neutral.
Analyst view: No data
Profitability: Modest
RoE
LATAM Airlines Group S.A. reported a return on equity (RoE) of 116.0% in the last 12 months, down from 191.5% in FY23. The market consensus projects an RoE of 102.3% in FY24, again ahead of its peers.
RoA
Another important profitability metric, return on assets (RoA), amounted to 4.1% in the last 12 months, an increase from 3.4% in FY23. The market analysts predict that RoA will be 3.1% in FY24, again weaker than its peers.
RoCE
In the last 12 months, the return on capital employed (RoCE) grew to 6.7%, below the peers. The consensus estimate for FY24 for RoCE is 11.7%, however, this time ahead of the peers.
Net margin
EBITDA margin
Historically, LTM.SN has reported very poor net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled 5.0%, a growth from 4.1% in FY23. The company has reported modest EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 11.5% in the last 12 months, up from 11.0% in FY23.
RoIC / WACC = 0.3(weak value creation)
The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 0.3 in the past several years. This ratio implies a weak shareholder value creation. Growth: Weak
Revenue
EBITDA
EPS
Free cash flow
LTM.SN reported revenue of USD 12 070mn in the last 12 months, up 4% from FY23. The dynamics of cash flow, as measure by free cash flow (FCF), were rather similar. EPS grew 25% from FY23 to USD 0.00. Market expects EPS to reach USD 0.00116 in FY24.Revenue has been growing steadily in the past several years (positive), while EBITDA has declined rapidly trend in recent years (strongly negative). Net income has fallen rapidly in recent years (strongly negative). Free cash flow has naturally followed the declining EBITDA. We emphasize the highly volatile dynamics of all key metrics. This is an extremely negative factor.
Dividends: Reasonable
Dividend paid
Dividend yield
The company tries to pay dividends regularly but only sometimes does so. It has paid dividends in roughly half the past ten years. Dividend per share (DPS) has grown yearly, but the dynamics are unclear. In the past 12 months, the dividend yield has barely been above zero and was substantially below that of its peers. At the same time, the average five-year yield has been significantly higher and exceeded most of its peers. On average, the company pays dividends annually.
Default risk: Moderate
The risk of default is moderate. We note resilient historical revenue growth and solid return on capital, among the positive credit factors. Among the negative credit factors, we point to poor working capital management, inadequate interest coverage, poor cash flow generation, and an unfavourable capital structure.
Volatility: Very high
In normal market circumstances, LTMAY is exceptionally volatile. Put differently, without outstanding market volatility or shocking company news, the stock's price will change quite unpredictably. The stock's losses on its worst days (less than 1-5% of the time) will range from critical to immense.
Stress-test: Very high
In highly turbulent market conditions, LTMAY is exceptionally volatile. In other words, the stock will be among the worst-performers in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be critical.
Selling difficulty: Noticeable
LTMAY has below average trading liquidity. It will take several trading days for the average private investor to sell a common position under normal market conditions. Liquidity is relatively stable and becomes extremely unfavourable on the days with the lowest activity. The trading volume mostly stays the same even under highly turbulent market conditions.
Country risk: Low
The institutional, legal, and compliance risks associated with the company's country are close to minimal. In combination with rigorous business standards, shareholder rights are well protected.
Other risks: Negligible
No other major risks have been identified.