Germany's flag carrier is being removed from the country's benchmark stock index for the first time since the gauge's inception more than three decades ago, after travel restrictions aimed at stemming the coronavirus pandemic sent the stock plunging.
Deutsche Lufthansa AG will be replaced by real estate company Deutsche Wohnen AG in the DAX Index, Deutsche Boerse said in a statement Thursday night. The change will come into effect June 22.
Shares in Lufthansa, which this week agreed to a $10 billion state bailout package, rose as much as 7.8% on Friday, paring their loss this year to 34%. That makes it the 60th largest German company by market value, while the DAX is reserved for the country's 30 biggest companies. Deutsche Wohnen rose as much as 3.4%.
The first half has been a tumultuous one for the German carrier, with the pandemic all but halting its business. Its massive size -- with operations spanning from catering to maintenance -- meant it has bled cash faster than other airlines. The bailout will inflate Lufthansa's debt and interest payments, and existing shareholdings will be diluted as the government takes a stake. The company said on Wednesday it will cut employee expenses and look at spinoffs to bolster cash flow.
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"Implications for Lufthansa's equity value from the support package, on top of the existing net debt and pension liabilities, are weighing on sentiment," Goodbody Stockbrokers analyst Nuala McMahon said by email before the announcement. There are also concerns about the corporate-travel market, which accounted for 50% of passenger revenue, and its strategy for leisure travel because of discount competition, she said.
More than two-thirds of analysts covering the carrier recommend clients should sell the stock, while the average price target among those tracked by Bloomberg suggests a 34% drop, in contrast to a 7.7% gain expected for British Airways parent IAG SA.
Not everyone is as negative on the airline's prospects. "The company appears to be able to exceed our expectations in terms of liquidity preservation," Bankhaus Metzler analyst Guido Hoymann wrote in a note Thursday. While visibility on the recovery of travel is still low, the management measures announced "seem totally plausible," and capital expenditure will be reduced significantly, he wrote.
Business on 06/06/2020