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Shares in loss-making African budget airline Fastjet (FJET) are bouncing from their worst levels (-4% vs -19% to fresh all-time lows) following news that the Chairman has quit because the company already needs to raise more capital.
A management departure from the top of the tree is seldom good news, far less when the company also needs more money so soon after a July cash call. On the flip side, available cash resources are only under pressure because of progress with aggressive, albeit more expensive than expected, cost cutting (25-35%) focused on route, frequency and aircraft re-appraisal. These measures are seen improving financial performance as soon as Q1 2017, the outgoing Chairman going as far as to forecast a return to breakeven by Q4.
Perhaps this is what is helping the shares bounce from their lows, evidence that cost cuts are actually bearing some fruit and that another passing round of the kitty early next year might be worth it to help put an end to the significant altitude loss the shares have suffered since early 2013, a trend that is no friend to passengers stuck on-board. No guarantee the sick-bag won’t be needed again, but keep your seat-belt fastened nonetheless.
Mike van Dulken, Head of Research, 25 Nov
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