Turkey's Pegasus Airlines sees IPO lift off

By bne IntelliNews April 23, 2013

bne -

Turkey's Pegasus Airlines completed its IPO on April 22, selling a 34.5% stake towards the middle of its price range. That sees the country's second largest airline trading at around the same pricing level as Ryanair and Easyjet, and double that of Turkish Airlines, as investors clamour for a slice of the potential for huge passenger number increases for the low cost carrier.

The listing was priced at TRY18.4 per share, Is Investment said, despite demand that still saw bids double the TRY650m raised. The deal values Pegasus at TRY1.88bn ($1.04bn). A greenshoe option was exercised. Total domestic demand from 10,300 investors was 23.6m lots, 2.5 times higher than the allocated share for the domestic market, according to Reuters. Demand from 79 foreign institutional investors was 44.6m, 1.9-times the allocated share.

The airline said last month, as it set a price range of TRY17-20.40, that the proceeds from the float will help fund expansion. The carrier bought 75 planes from Airbus in December, in line with a goal of tripling its fleet to tap into the rapidly developing market for cheap flights in both Turkey and the neighborhood. Pegasus has the option to boost the order by an additional 25 planes, which would take the full value of the deal to $10.3bn for 100 aircraft. The discount carrier has grown sixfold since its 2005 takeover by local giant Sabanci Holding.

Revealing the pace of development in the sector, the Airbus order from Pegasus was the largest ever deal in Turkish aviation history. However, the budget airline only held the title for three months. In March, Turkish Airlines announced an order for up to 117 jets from the European plane builder, notes the Wall Street Journal. Pegasus, which flies to 61 destinations in 24 countries, increased its passenger count by 25.8% between 2010 and 2012.

It's that rapid growth that attracted investors to the IPO, which the newspaper points out gives Pegasus a similar price/earnings ratio as Ryanair, Easyjet or US low cost carrier Jet Blue. At around 14.6-times, the airline's P/E ratio is almost double that of Turkish Airlines, which is the fastest-growing large carrier in the world, and trades on one of the best performing equities markets in the world over the past few years.

And yet given the level of demand and pricing closer to top than bottom of the initial range, analysts expect more, starting on April 26 when the shares debut on Borsa Istanbul. On top of that anticipated pop, others suggest the strength of coming growth in Turkish aviation will see the IPO price to look a significant bargain over the next couple of years.

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