The Regional Express Holdings Ltd (ASX: REX) share price is taking a beating on Wednesday after exiting its self-imposed trading halt.
Descending into the afternoon, shares in Australia’s largest independent regional airline operator are 14% lower at $1.04 apiece. Earlier today, the company’s share price was punished to a fresh 52-week low of $1.00.
Guiding for a bumpy result
Regional Express delivered a doozy of an update to the market late yesterday afternoon.
The announcement, which pertains to the airline’s interim guidance, has had plenty of time to be soaked in by shareholders overnight. Today’s verdict is clear… the revision is not a pleasing one.
Back on 28 February this year, the company’s management noted their optimism, believing the airline could deliver an operationally profitable FY23.
Unfortunately, that sentiment has now been squashed amid a global shortage of pilots and engineers; a disrupted network; and exhausted business travel spending. Consequently, the airline is now forecasting an operational loss of $35 million for the financial year.
At the same time, management remains positive operational profits could materialise in FY24.
Oddly, these expectations are the reverse of what is being witnessed in Qantas Airways Limited (ASX: QAN). Seemingly unimpeded by the headwinds faced by Regional Express, the flying kangaroo is eyeing an all-time record profit of between $2.425 billion and $2.475 billion in FY23.
Meanwhile, chief economist at the International Air Transport Association (IATA), Marie Owens-Thomsen, believes the global airline industry could be on course for weakening as it flies beyond the current financial period.
Is the Rex share price now cheap?
It’s difficult to evaluate the intrinsic value of an unprofitable and cyclic company. Though, there are a couple of fundamental metrics that are possibly worth considering.
Firstly, the airline is trading slightly below its book value, as shown in the chart below. This would suggest the company is trading at a discount to the value of its assets. Although, it’s not a perfect rule as the ‘real’ value of its assets could vary.
Regional Express price-to-book ratio chart by TradingView.
Secondly, the Rex share price could be influenced by the company’s balance sheet. Debt has grown significantly since 2020, now sitting at a net debt position of $168 million.
At the end of last year, debts were well covered by operational cash flow. Today’s revised guidance might bring the extent of coverage into question.
The Regional Express share price is down 28.3% since the start of the year.
