Fixed Income Analysis /

Gol Linhas Aereas Inteligentes: Strong Q2 results despite Max aircraft grounding; reiterate Buy

    Rafael Elias
    Rafael Elias

    Director, Latin America Credit

    Tellimer Research
    14 August 2019
    Published by

    Gol Linhas Aéreas Inteligentes, the parent company of the issuer Gol Finance Inc. (GOLLBZ), reported strong Q2 19 results despite part of its Boeing Max fleet being grounded. Still, in what is cyclically the weakest quarter for aviation companies in Brazil, GOL reached net revenues of US$800.9mn and EBITDA of US$226.3mn in Q2 19, compared to US$652.2mn and US$57.6mn, respectively a year ago. EBITDAR in Q2 19 was US$226.3mn versus US$132.1mn in Q2 18. Net revenues in Q2 19 was the highest ever recorded for the company in a second quarter. This was achieved mainly via strong demand in the corporate segment that, in turn, resulted in higher Revenue Passenger Kilometres (RPK) – an 8.9% increase in the number of passengers.

    GOL expanded into new regional markets, from its hub in São Paulo Guarulhos airport to Brazil’s top travel markets of Rio de Janeiro, Brasilia, São Paulo and Salvador. Internationally, the company started direct flights to Cancún from Brasilia, its 14th international destination, becoming the only Brazilian airline with direct flights to this destination.

    The company also reported a strong cash position with US$258.8mn in cash and US$207.4mn in short-term investments, versus US$213.2mn in cash and US$123.5mn in marketable securities at the end of 2018 (US$158.7mn cash and US$297.6mn short-term investments in Q2 18). Debt-plus-leases (as it needs to be reported since the start of the year to meet IFRS standards) was US$3.535bn at the end of Q2 19, compared to US$3.67bn in 2018 and US$3.639bn in Q2 18. As a result, debt-plus-operating-leases/EBITDAR was 3.7x at end-Q2 19, compared to 6.2x in 2018, but higher than the 2.8x in Q2 18.

    GOL Finance’s US$78.08mn, 8.875% senior unsecured bonds due 2022 (B-/B+), currently trade at cUS$101.761 (ALLQ) to yield c7.56% (g-spread 582bps; z-spread 582bps). Its US$650mn, 7.0% senior unsecured bonds due 2025 (B-/B+), currently trade at cUS$100.32 (ALLQ) to yield c6.91% (g-spread 535bps; z-spread 539bps). These bonds compare favourably to GOL’s main peer Azul Investments’ (AZUL) US$400.0mn, 5.875% senior unsecured bonds due 2024, currently trading at cUS$102.285 (ALLQ) and yielding c5.26% (g-spread 370bps; z-spread 375bps). GOLLBZ’s US$153.90mn, 8.75% senior unsecured perpetual bonds currently trade at cUS$98.51 (ALLQ) to yield 8.98% (g-spread 656bps; z-spread 722bps).

    We reiterate our Buy recommendation on GOLLBZ on what we believe are attractive yields and a positive business outlook.