Alliance Aviation Services Limited (ASX: AQZ) will deliver shareholder returns better than 20% over the next 12 months, Wilsons Advisory analysts believe, despite a sharp downgrade to the expected share price growth over the period.
Wilsons has lowered its 12-month price target on Alliance stock from $3.89 to $2.58. The downgrade was driven by management commentary on the company's earnings report in mid-August.
Alliance's recent FY25 result was in line with guidance, but outlook commentary has led us to recalibrate earnings forecasts and consider alternative valuation metrics. We reduce our operating fleet assumptions, which implies a more subdued earnings growth outlook over the medium term.
Wilsons said Alliance management indicated that organic growth in contract activity was expected to continue, driven by existing clients and new business opportunities, particularly in Western Australia and Queensland.
The company was also aiming to maintain a strict focus on cost control to preserve and where possible grow profitability.
Changes to our FY26 forecasts are minimal, with lower core flying earnings offset by stronger aviation services activity. For FY27 we reduce our earnings forecast materially to reflect a smaller operating fleet and lower aviation services activity. Our revised forecasts imply a broadly flat earnings per share profile over the medium term.
Wilsons is forecasting a total shareholder return of 22.2% over the next 12 months, made up of 16.6% share price appreciation and a 5.6% dividend yield.
Steady as she goes on the business front
While announcing its results last month, Alliance said it had a "solid" outlook for FY26.
With Qantas exercising its final four wet lease options in FY25, FY26 will mark the first full year of Qantas wet lease operations. This is anticipated to contribute to higher revenue and improved crew utilisation and efficiency. The group remains committed to pursuing strategic aviation services transactions that complement our core operations as well as delivering enhanced profitability and generating substantial cash flows.
The company said with the expansion of its E190 fleet coming to an end, it would shift its focus to "disciplined financial management, with a particular focus on optimising cash flow and reducing debt levels''.
"The group remains committed to pursuing strategic aviation services transactions that complement our core operations as well as delivering enhanced profitability and generating substantial cash flows," the company said.
Alliance shares were changing hands on Friday morning at $2.20, valuing the company at about $350 million.
The company operates 79 aircrafts in total, following its purchase of five Embraer E190s during the past year.
