(MENAFN- ProactiveInvestors) Sanlam Securities has initiated coverage of low-cost African airline fastjet () with a price target two-and-a-half times the current share price.
The price target is 291p versus the current share price of 116.4p with the airline's house broker saying fastjet's growth prospects have been transformed by the recent £50mln fund-raising.
fastjet offers a “rare and attractive opportunity” to invest in the growth in the sub-Saharan African air travel market which is only just getting used to the low-cost carrier (LCC) model.
A combination of rapid economic growth expanding middle classes and a large population is expected to drive higher propensity to travel by air and greater LCC penetration the broker asserts.
Sanlam has pencilled in a compound annual growth rate (CAGR) in sales of 82% as fastjet expands its service to up to 40 unique destinations from at least six operating entities over the next three years.
That project is based on an estimated 84.2mln passengers in the sub-Saharan African air travel market in the current year which to put that into perspective dwarfs the 72.3mln passengers that pass throw London Heathrow each year.
Sanlam sees the African air travel market growing by at least 55 a year over the medium term.
“Africa represents 15% of the world population 20% of land mass and only 3% of the world's aviation market” the broker notes.
It thinks the market is ripe for the LLC revolution and fastjet has first-mover advantage plus an experienced and credible management team.
“fastjet has been successful in stimulating traffic with low fares. Over 1.2mln passengers have flown with fastjet since it was launched on 29-Nov-12. Some 35% of fastjet’s passengers in Dec-14 were first time fliers. A key milestone has been achieved; fastjet delivered its maiden group operating profit in Dec-14 driven predominantly by an increase in capacity” the broker said.
The recent share placing has laid to rest fears about the airline not having the capital to exploit the opportunities in Africa but in Sanlam's view the share price fails to reflect this.
The strong balance sheet enables aircraft expansion and new operating entities and routes to be established and there is minimal competition across its network while barriers to entry are high.
Sanlam rates the shares as a 'buy'.
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