@ProverB, Very insightful analysis!
I hold KQ but I must admit it is one of the shares in my portfolio that keep my adrenalin pumping, not always in a positive manner.
I have been pretty happy to keep holding it and I would have considered adding at current prices. But given recent events, I am more inclined to sell (even if I will have to take a loss).
With increasing oil prices I am rather uncertain on the direction that air travel will be taking.
KQ got bloodied when oil prices last spiked and then dramatically fell. During the last Investor briefing, TN indicated that they had learnt from their mistake(s) and hence would consequently only enter into shorter duration hedges and of lower proportions (or something like that). I am therefore guessing that quite a huge proportion of their fuel needs are unhedged and if the oil prices continue to ramp up, that will only make things worse for them.
In the H1 results, KQ also had a substantial (unrealised) loss on
currency hedges. I have never managed to find out exactly what this was about, so I do not know what the likelihood of realization or otherwise was (is). Perhaps someone (VVS et al) can give us the lowdown on this.
To
cloud matters even more is the
impending capital raising. Like most airlines, KQ is heavily indebted and I am wagering that they will not want to increase their liabilities by taking on more debt by issuing a bond if they can avoid it. I am therefore expecting a rights issue which under present circumstances would only serve to bring down the stock price. Companies that have had substantial rights issues in the recent past have all had their stock prices pummelled in the runup to the rights e.g. KCB & KPLC. KQ is unlikely to be an exception, if it does indeed go for a rights issue.
Given the above reasons, I am therefore quite bearish. However, I would buy the rights in the market if that comes to pass as I believe they will be at a discount.