Azul S.A. (AZUL) | Investment Case

1. Company Snapshot

1.a. Company Description

Azul S.A., together with its subsidiaries, provides passenger and cargo transportation services in Brazil.As of December 31, 2021, the company operated 850 daily departures to 125 destinations through a network of 259 non-stop routes with a fleet of 179 aircraft.It is also involved in the loyalty programs, travel packages, investment fund, logistics solutions, and aircraft financing activities.

The company was incorporated in 2008 and is headquartered in Barueri, Brazil.

Show Full description

1.b. Last Insights on AZUL

Azul S.A.'s recent performance was negatively impacted by elevated operating expenses, which likely hurt the company's Q4 earnings. Rising expenses weighed on the bottom line, despite upbeat air travel demand that bodes well for the top line. Additionally, the company's financial health and stock performance have been significantly impacted by macroeconomic challenges, climatic events, and operational setbacks, shifting its investment thesis to survival. The potential merger with Gol Linhas Aéreas could create synergies, reduce operating costs, and boost Azul's market position, but the company's high leverage and ongoing financial struggles remain a concern.

1.c. Company Highlights

Last Price	0.5
Change Percentage	0.00%
Open	0.53
Previous Close	0.5
Market Cap ( Millions)	156
Volume	2919527
Year High	5.18
Year Low	0.2
M A 50	0.89
M A 200	1.97

FCF Yield	-128.51%
Dividend Yield	0.00%
ROE	9.46%
Debt / Equity	-138.16%
Net Debt / EBIDTA	619.40%
Price To Book	-0.03
Price Earnings Ratio	-0.32
Price To FCF	-0.78
Price To sales	0.04
EV / EBITDA	6.34

2. Azul Soars Back to Operational Excellence with Strong Q1 Performance

Azul delivered a solid first quarter, showcasing its recovery from past challenges. The company reported revenue of R$5.4 billion, a RASK of R$0.42, and EBITDA of R$1.4 billion, reflecting strong operational execution. Despite a 16% increase in capacity, unit revenue remained flat, supported by robust demand and the outperformance of high-margin business units. These units, including loyalty programs, vacations, and cargo, saw their RASK contribution rise from 19% to 23% year-over-year, with loyalty program revenue surging 65% and cargo EBITDA doubling. Ancillary revenue also grew 22%, driven by premium products and merchandising efforts. However, the company reported an EPS of -2.18, significantly below analyst estimates of 0.04, reflecting ongoing challenges in profitability.

Publication Date: May -15

                                    📋 Highlights
                                    Revenue Performance:
                                                Azul reported R$5.4 billion in revenue for the first quarter, supported by strong demand and high-margin business contributions.
Growth in High-Margin Units:
                                                Loyalty programs, vacations, and cargo units saw significant growth, with loyalty program revenue up 65% and cargo EBITDA doubling.
Ancillary Revenue Growth:
                                                Ancillary revenue grew 22% year-over-year, driven by premium products and merchandising efforts.
Operational Improvements:
                                                Aircraft utilization increased by 5% and productivity grew 18.9%, while irregular operations decreased by 65%.
EBITDA Guidance:
                                                Azul reiterated its full-year EBITDA guidance of R$7.4 billion, with expectations for stronger performance in the second half.

                                

Operational Improvements and Cost Management

The quarter highlighted Azul's focus on operational efficiency, with a 5% increase in aircraft utilization and an 18.9% improvement in productivity. Irregular operations plummeted by 65%, reducing customer hotel nights by 75%, a clear sign of better execution. These improvements were complemented by strong demand in both corporate and leisure segments, positioning the company well for future growth. As CEO John Rodgerson noted, *“Our operational improvements are a testament to our team’s dedication and the effectiveness of our strategic initiatives.”*

Future Outlook and Strategic Initiatives

Azul remains optimistic about its financial outlook, with EBITDA expected to recover as fuel prices stabilize and foreign exchange impacts moderate. The company reiterated its full-year EBITDA guidance of R$7.4 billion, with the second half expected to be stronger. Capacity growth is on track, with domestic capacity up 8% and international capacity growing 10%, driven by network adjustments and recovery from past OEM-related disruptions. Management also emphasized progress in spare aircraft and engine availability, which should further enhance operational stability.

Valuation and Financial Position

Overall, Azul’s Q1 results underscore its return to operational excellence and improving financial health, though profitability challenges and macroeconomic uncertainties remain key considerations for investors.

3. NewsRoom

Azul Launches Technology Alliance Partner Program to Accelerate Innovation and Expand the Ecosystem of Java Solutions

Sep -23

Source: businesswire.com

Azul Platform Prime Achieves Historic First with 10,000+ JVMs Collaborating and Sharing Performance Optimizations, Cutting Cloud Costs by More than 20%

Sep -17

Source: businesswire.com

Azul Launches Managed Services Program for Partners Built on Azul Intelligence Cloud

Jul -29

Source: businesswire.com

dstgroup Backs Gazelle Wind Power with €1,5M Strategic Investment to Advance Nau Azul Project and Demonstrate Scalable Floating Platform for +15MW Wind Turbines

Jul -16

Source: businesswire.com

Azul and RapidFort Partner to Deliver Near-Zero CVE Enterprise Grade Java Container Images, Backed by Commercial Java Support

Jul -10

Source: businesswire.com

Payara and Azul Announce Strategic Partnership to Power High-Performance Java Deployments and Codeless Migrations

Jul -08

Source: newsfilecorp.com

Azul and OpenValue Expand Partnership to North America as OpenValue Introduces Global Oracle Java Migration Guarantees

Jun -19

Source: businesswire.com

Azul and Chainguard Partner to Strengthen Container Security for Java Workloads

Jun -12

Source: businesswire.com

4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (7.43%)

6. Segments

Air Transport

Expected Growth: 7.4%

Azul S.A.'s 7.4% growth in Air Transport is driven by increasing demand for domestic and international travel, fueled by Brazil's economic recovery and rising middle-class disposable income. Additionally, the airline's strategic expansion into new routes, modernization of its fleet, and focus on cost reduction have contributed to its growth momentum.

Other

Expected Growth: 10.27%

Azul S.A.'s 10.27% growth in 'Other' segment is driven by increasing adoption of its open-source Java development tools, expansion into new markets, and strategic partnerships. Additionally, growing demand for digital transformation and cloud migration is fueling the need for Azul's products, leading to increased revenue.

7. Detailed Products

Azul Zing

A low-latency, Java-based runtime that provides consistent and predictable performance for latency-sensitive applications

Azul Zulu

A certified, open-source, and commercially supported version of OpenJDK, providing a drop-in replacement for Oracle JDK

Azul Vulnerability Detection

A cloud-based service that identifies and prioritizes Java vulnerabilities, providing actionable insights for remediation

Azul Java Runtime

A family of Java runtimes, including Zing and Zulu, providing a range of performance, security, and support options

8. Azul S.A.'s Porter Forces

Forces Ranking

Threat Of Substitutes

Azul S.A. operates in a niche market with a unique product offering, reducing the threat of substitutes. However, the company's dependence on a few key customers and suppliers increases the threat of substitutes.

Bargaining Power Of Customers

Azul S.A.'s customers have significant bargaining power due to their large size and negotiating power. This can lead to pressure on prices and margins.

Bargaining Power Of Suppliers

Azul S.A. has a diversified supplier base, reducing the bargaining power of individual suppliers. The company's strong relationships with suppliers also mitigate this risk.

Threat Of New Entrants

The barriers to entry in Azul S.A.'s market are relatively high, making it difficult for new entrants to gain traction. The company's established brand and customer relationships also provide a competitive advantage.

Intensity Of Rivalry

The market in which Azul S.A. operates is moderately competitive, with a few established players. However, the company's unique product offering and strong customer relationships help to differentiate it from competitors.

9. SWOT Analysis

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

	Value
Debt Weight	-169.44%
Debt Cost	12.76%
Equity Weight	269.44%
Equity Cost	12.76%
WACC	12.76%
Leverage	-62.89%

11. Quality Control: Azul S.A. passed 4 out of 9 key points

Strong Liquidity

Low Debt

Strong Interest Coverage

Healthy Cash Flow

Operating Efficiency

Strong Return On Equity

Consistent Revenue Growth

Consistent Operating Cash Flow Growth

Margin Improvement

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

Norwegian Air

A-Score: 5.2/10

Value: 7.9

Growth: 3.9

Quality: 4.2

Yield: 4.4

Momentum: 8.0

Volatility: 2.7

1-Year Total Return ->

Air Transport Services Group

A-Score: 5.1/10

Value: 6.7

Growth: 4.9

Quality: 4.8

Yield: 0.0

Momentum: 9.0

Volatility: 5.0

1-Year Total Return ->

Sun Country Airlines

A-Score: 4.8/10

Value: 7.2

Growth: 6.7

Quality: 5.7

Yield: 0.0

Momentum: 6.5

Volatility: 3.0

1-Year Total Return ->

Finnair

A-Score: 4.0/10

Value: 7.2

Growth: 4.7

Quality: 1.5

Yield: 1.9

Momentum: 7.0

Volatility: 1.7

1-Year Total Return ->

Blade Air Mobility

A-Score: 3.9/10

Value: 8.2

Growth: 5.4

Quality: 3.1

Yield: 0.0

Momentum: 4.0

Volatility: 2.3

1-Year Total Return ->

Azul

A-Score: 3.6/10

Value: 9.4

Growth: 3.8

Quality: 3.5

Yield: 0.0

Momentum: 1.0

Volatility: 4.0

1-Year Total Return ->

Peers Metrics

12.e Scoring ^Insights

12.f DCF ^BETA

Parameters

Short Term Growth

-2.40%

Short term Time

10.0

Long-Term Growth

2.00%

WACC

12.76%

Azul S.A. - US05501U1060

1. Company Snapshot

1.a. Company Description

1.b. Last Insights on AZUL

1.c. Company Highlights

Cheaper

Stable Momentum

Average Quality

Earnings Miss

Revenues Miss

Average Yield

Revenues Beats

Medium Volatility

Weak Momentum

Fairly Valued

2. Azul Soars Back to Operational Excellence with Strong Q1 Performance

Operational Improvements and Cost Management

Future Outlook and Strategic Initiatives

Valuation and Financial Position

3. NewsRoom

4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (7.43%)

6. Segments

Air Transport

Expected Growth: 7.4%

Other

Expected Growth: 10.27%

7. Detailed Products

Azul Zing

Azul Zulu

Azul Vulnerability Detection

Azul Java Runtime

8. Azul S.A.'s Porter Forces

Forces Ranking

Threat Of Substitutes

Bargaining Power Of Customers

Bargaining Power Of Suppliers

Threat Of New Entrants

Intensity Of Rivalry

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

11. Quality Control: Azul S.A. passed 4 out of 9 key points

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

0.5$

Current Price

0.5$

Potential

-0.00%

Expected Cash-Flows

12.e Scoring ^Insights

12.f DCF ^BETA