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SK: Market Capitalization Shrunk By 23 Billion SEK

Sun May 27, 2012 8:48 am

23 billion SEK is lost in SAS In five years

SAS share price collapsed by 98 percent and market capitalization has shrunk by 23 billion SEK

The Swedish state is SAS 'largest shareholder with 21.4 per cent of the shares. Today, the Swedish part of SAS worth 430 million Swedish kronor after having been worth over 5 billion five years ago. The same grim development for Norwegian and Danish shareholders ....

The total losses in the company over the last four years, amounting, according to 13 billion Swedish kronor.

Translated excerpts from article in Norwegian:

And some people still think there is any future for SAS ? How on earth are they gonna be able to pay for all these new aircraft that they say they will order ?

The governments of Scandinavia can't possibly accept this any longer ?
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RE: SK: Market Capitalization Shrunk By 23 Billion SEK

Sun May 27, 2012 4:38 pm

Though those numbers look spectacular at first, one has to keep things into context.

The SAS shares were overpriced in 2007. They sold like cupcakes at prices that were x times the actual valuation of the company. The company was turning profits and the world was prospering, or so it looked.

In the meantime a lot has happened.
-the 2008 economic collapse
-SAS incidents requiring an interim fleet reorganisation, some bad press
-rise of low-cost competition
-a toughening travel market in Scandinavia, that has seen airlines failing one after the other in recent months.

Simly put, the bubble burst.

While the 2007 market valuation was excessively high, today's market valuation is too low.
This isn't an exception in the industry.
Lufthansa shares have dropped almost 60% from their high's in 2007 and AF shares 92%.

Airlines tend to be good conjectural measuring instruments as their shares are true economic roller coasters.
For an investor however, they tend to be high risk investment assets. They provide low return on investment and so many factors can affect them negatively.

Looking at the current market price of SAS shares, I feel very tempted to buy.
But years of studying airline stocks have taught me better.

I would only buy the SK stock if there is a good chance that someday SK will turn around and become very profitable. Their A320 NEO order is one step in the right direction but it takes more to convince.

SK is operating in a very inefficient way. They have too many hubs serving low density population area's.
For an airline located in a low density peripheral area, the only viable business models are to establish operations in more central and high population density area's, like Ryanair did, or to focus on longhaul like EK did.
Sure they can operate some regional networks, but then they should use ATR's or other small turboprops, not big RJ's.

At this point, I would only buy SK if
-it drops below 2 SEK a share and they get rid of their B735/B736 asap, with prospects of maintaining shallow profits in the next 5 years.
-at current prices, if they order 40 B777/A350XWB/B787/A330 and launch a massive longhaul expansion to developing countries, while getting rid of the mini-Boeings and all the classics.

Share prices are about how much you expect a company to earn in the short to mid term amd in case of airlines, the business model must be very promising, before I can call it an interesting investment opportunity.

For me, SK has to invest even more into its future.
SK has cash, but investors don't want their money to sit still on SK's bank account.
They want it to be used to make more money, which is what investing is all about.

[Edited 2012-05-27 09:42:06]
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RE: SK: Market Capitalization Shrunk By 23 Billion SEK

Sun May 27, 2012 4:50 pm

Quoting Wisdom (Reply 1):
Simly put, the bubble burst.


SAS will have a positive ROI replacing the aircraft. Hence the ability to borrow for them. All SAS has to do is the down payment and then they'll save on fuell.

Quoting Wisdom (Reply 1):
SK has cash, but investors don't want their money to sit still on SK's bank account.
They want it to be used to make more money, which is what investing is all about.


Lost stock value is just an interesting factoid. It has nothing to do with future investment other than the impact on raising cash.

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