Airline valued at up to €740m

Aer Lingus will achieve a valuation of around €600-€740 million, based on earnings forecasts included in research from Dublin stockbroker, Dolmen Securities.

The figures come a day before the airline's prospectus is issued.

The prospectus, due to be published tomorrow, will give an indicative price range for the shares in the airline. But with fund managers talking the stock down and advisers keen to price the shares "to go", earlier valuations may prove too optimistic.

Advisers to the company and the Government will today put the finishing touches to the prospectus. The document, which could run to up to 300 pages, will outline the airline's history and give an up-to-date trading position. Only investors prepared to invest a minimum of €10,000 are being allowed to participate in the offer.

While analyst comment has been broadly favourable in Ireland and Britain, there are increasing indications that valuations from several months ago, of up to €1 billion, will not be met.

There is also increasing pressure from the Dublin fund management community to make sure the IPO (initial public offering) is priced attractively. The Irish fund managers are an important constituency because at least 50 per cent of the shares must be held in Ireland under international aviation agreements.

The research note from Dolmen head of research, Stuart Draper, was sent early last week to its investment clients. The note does not include a recommendation on the stock, but it does give broad parameters for how Aer Lingus should be valued in terms of market capitalisation.

It points out that Aer Lingus will post earnings before interest and tax, depreciation, amortisation and restructuring (EBITDAR) of €150 million for 2006. It says network airlines are currently trading at about 5 or 6 times EBITDAR, which would put a value of €750-€900 million on the airline.

However, when the airline's net debt of €159 million is subtracted, it gives a range of between €591 million and just over €740 million.

The Dolmen research does not use a specific figure concerning an Aer Lingus valuation, but simply sets out the way valuations are normally reached for airline stocks.

"As a result of offering clients the service of participating in the IPO, we are prevented from issuing a recommendation on Aer Lingus," the research states.

The research suggests that Aer Lingus EBITDAR and net profits are going to be trimmed back significantly in 2006. For example, it says net profit is likely to fall from the €72.3 million recorded in 2005 to €38 million this year.

It says major year-on-year fuel increases are a significant factor behind these figures.

"Aer Lingus also has an effective net debt position of €159.1 million once its pension deficit of €170 million is deducted from its current net cash of €10.9 million," the note says.