Soaring Fuel Prices

We lowered our 12-month fair value target for Air Arabia’s stock price by 20%, from AED 1.00 per share to AED 0.80 per share. This drop in valuation is driven by tighter operating margins and the decline in the value assigned to the hubs in Morocco and Egypt. We feel that Air Arabia’s stock price has some downward protection as cash and available-for-sale investments (after accounting for the dividend payment) account for AED 0.48 per share. Based on yesterday’s closing price, our recommendation for Air Arabia is “Accumulate”.

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