Pegasus (PGSUS TI) evolving towards a recovery: Buy

Traffic and revenue

Traffic moving in line with the company’s expectations, evolving towards a recovery (in total ASK vs 2019) of 70-75% in full-year 2021 vs 69% YTD (through August). Domestic traffic leads the recovery (expected at 90-95% in FY21) and international still lags behind (65-70%) but is trending up as restrictions keep being eased gradually.

Load factors are still below pre-pandemic but follow traffic trends while yields
still remain weak (in EUR terms, both domestic and international), putting some pressure
on revenue recovery (as expected by management given their order of recovery; first
capacity and lastly yields). Factors to watch are; vaccination rates in Turkey/MENA, EU
and Israel’s decisions on restrictions and the UK’s impact post-easing.

Fleet and capex

38 new aircraft, all A321neo, will enter the fleet in 2022-23, of which 20 next year. Net additions (after re-deliveries of B737s) will add up to 21 in 2022-23 (12 in 2022). These are committed orders and, if needed, capacity will be curbed by the sale of the B737s in the fleet (as seen in the past). All new aircraft will be on financial leases and the total required funding for 2022 is estimated to be in the range of EUR0.8-1.0bn and will be secured in upcoming months (via a tender as usual).

Cash and leverage

Pegasus had total cash of cEUR700m as of 1H21, which most probably increased further thanks to cash generated from operations in Q3. As per the fleet plan, PDPs will cause net outflows of cEUR100m this year and cEUR70m next year but leverage (net debt/EBITDA) is expected by management to come down in 2022-23 despite new fleet entries with long-term (2025) target of reaching c2x.


Hedged (fuel) 61% for 2021 and 16% for 2022 as of 1H21 but expecting 2022 ratio to eventually reach c50%. Hedging prices (USD53-62/bbl for FY21) have started to generate profits at spot Brent levels.


With Turkish Airlines having transferred all its routes at Sabiha Gokcen Airport (SAW) to its budget brand Anadolu Jet last year, competition has become leaner now between Pegasus and Ajet SAW. Pegasus believes its competitive cost base (pre-pandemic ex-fuel CASK at cEUR2.06, one of the lowest globally) should help address ay competitive pressure successfully.

We lower our TP to TRY97.70 and reiterate our Buy rating. We lower our target price
to TRY97.70 from TRY101.60 as a result of higher WACC (increase in EUR RfR in our
DCF model that uses Turkey’s Eurobond rates). Our forecasts remain unchanged.
Based on 25.5% implied upside, we maintain our Buy rating. Please see page 3 for
details on valuation and risks.



HSBC Global Research