Liberum downgrades Fastjet on short-term challenges

Liberum downgraded African budget airline Fastjet to ‘hold’ from ‘buy’ and slashed the price target to 45p from 90p following a “disappointing” trading update, which has led the brokerage to cut its 2016 and 2017 forecasts.

Liberum now expects a $20m loss in 2016, compared with a $1.4m profit previously. Breakeven is now pushed back to next year, with the brokerage’s estimates assuming a return to the previous expansion plan one year later than before.

It said the outlook for Fastjet remains uncertain and management has flagged the possibility of a fundraising to provide additional balance sheet headroom.

“We consider the long-term opportunity in African aviation to remain intact, and the low cost model has become dominant in all other major markets. For now, this is outweighed by the short-term uncertainty.”

Liberum pointed out that the roll-out of Fastjet’s route network has not gone completely according to plan, with certain international routes and new bases delayed.

In addition, trading conditions have been tougher than expected, with headwinds from the hiatus in government activity that followed the Tanzanian elections and currency devaluations.

Nevertheless, “Fastjet is still positioned to be the leading Pan-African operation with a focussed low cost model that has proven highly successful on every other continent in the world,” Liberum said.

At 1057 GMT, Fastjet shares were down 1.2% to 42.50p.