Flybe Group PLC (LON:FLYB) shares flew lower after the airline issued its second profit warning this year.
Shares fell 13.64% to 38.09p in morning trading as the group said first half profits will be lower than expected following an increase in aircraft maintenance costs.
READ: Flybe shares soar after rosy trading update
Flybe now expects adjusted pre-tax profit of £5mln to £10mln in the first half of the 2017 fiscal year, compared to £15.9mln in the year-ago period.
“While half-year profits are lower than expected, I am confident that we are still on a clear sustainable path to profitability in line with our stated plan,” said chief executive Christine Ourmieres-Widener.
“The increased maintenance costs are disappointing, but we are already addressing these in the second half and remain focused on improving our cost base and reliability performance.”
Flybe has launched a full review of its maintenance strategy in an effort to improve costs and the performance of its aircraft, particularly its Bombardier Q400 turboprop.
Ourmieres-Widener said its so-called Sustainable Business Improvement Plan is delivering benefits with a reduction in its fleet size resulting in an increase in yield and load factors.
Liberum downgrades Flybe to 'hold'
The profit warning prompted Liberum to downgrade its rating on the stock to ‘hold’ from ‘buy’ and cut the target price to 45p from 50p.
Liberum expects a £15mln hit to profits this year due to higher maintenance costs but said this should be “conservative and one-off”.
“There ought to be a payback from improved reliability, which in turn should reduce passenger compensation and other disruption costs,” the broker said.
“The commercial performance appears encouraging, with improvements in both yields and load factors.”
However, shares will struggle until there is greater clarity on maintenance costs and further evidence of capacity cuts to support revenues, Liberum added.
Numis puts stock under review
Numis moved its rating and target price on the stock to ‘under review’ from a previous ‘hold’.
The broker expects Flybe will report a loss per share of 4.7p for fiscal year 2018, compared to a prior forecast for earnings per share of 2.1p. Numis also cut its estimate for 2019 to a loss per share of 1.0p from earnings per share of 4.4p.
It forecasts £12.3mln pre-tax profit before exceptional items in the first half of 2018 and a loss before tax prior to exceptionals of £22.5mln in the second half.
“The shares are up 25% since its 1Q18 results in July, and we expect this morning's warning to significantly reverse these gains,” Numis said.
“ Our recommendation and target price are under review (from Hold 35p) as we await further guidance at its 1H18 results on 9 November 2017.”