Citigroup cut its share price target and earnings estimates for UAE-based budget carrier Air Arabia, following a disappointing second quarter, and cited an expected fall in 2010 average ticket price.
Citigroup now sees average ticket price in 2010 falling by 2 per cent, compared with its prior view of a 3 per cent growth.
Last week, Air Arabia said net profit for the second quarter fell 44 per cent, hit by declining yields hurting airlines globally and higher fuel prices and falling short of most analysts forecasts.
"Having made a 9.5 per cent net margin year to date, we believe the company's long-term target of 20 per cent is unlikely to be achieved until 2012 at the earliest," Citigroup said.
The brokerage, however, said the stock still held good value and expects the two-year earnings-per-share declines to end in the fourth quarter and recover from 2011. It maintained its "buy" rating on the stock.
Citigroup lowered its price target on the stock of Air Arabia to Dh1.15 from Dh1.35. EPS estimates for 2010 were slashed by 30 per cent to Dh0.0583.
Shuaa Capital also said in a note that Air Arabia’s bottom line missed its estimate as a result of contraction in gross margin but it remains positive on the company. It projected less pressure on yields and margins in second half.