Air New Zealand Limited

AIZ Details

Targeting Healthy Profits by 2022:Air New Zealand Limited (ASX: AIZ) is the flag carrier airline of New Zealand, operating more than 110 aircrafts to over 40 destinations. The company recently responded to the media speculation regarding the assessment of various funding options by AIZ, including a capital raise. The company stated that it is keeping an eye on its capital structure and the options available to it and currently has a NZ$900 million undrawn facility.

April 2020 Update: During the period, demand for travel significantly declined in comparison to prior corresponding period, with group passengers carried declining by 98.9%. On YTD basis, group passengers carried declined by 12.5%. The company had a resilient balance sheet and short-term liquidity of over NZ$1 billion prior to COVID-19 outbreak. As at close of business on 25 May 2020, short-term liquidity was approximately NZ$640 million.


April 2020 Highlights (Source: Company Reports)
 
2020 Outlook: As a result of market deterioration due to COVID-19, the company suspended its full year guidance on 9^th March 2020. The recent move to Alert Level 2 has enabled the company to resume the domestic services. For 2HFY20, network capacity is expected to be around 50% lower than the prior comparative period. Amid the ongoing market conditions and challenges witnessed through 2020, the company expects to report an underlying loss for FY20.

Vision for 2022: By 2022, the company is targeting around 13 million customers annually as compared to 18 million pre-COVID-19. The business is expected to be more profitable in the future than before and will support reinvestment in customer experience, consistent profit share bonuses, and distribution of dividends to shareholders.The company has set the date for reporting the annual results in late August 2022, when the company will start earning healthy profits again, although, at 70% of its pre-COVID-19 size.

Valuation Methodology:EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock of the company corrected by 35.74% in the last six months and gained 44.58% in the last one month. The stock is currently approaching the average of its 52-week trading range of $0.8 - $2.94. During 1HFY20, the company delivered a solid performance, driven by growth into new markets, laying a strong foundation for growth as the demand normalises. As on 31^st December 2019, the company had total debt and cash amounting to NZ$3,659 million and NZ$1,064 million, respectively. We have valued the stock using the EV/Sales multiple based illustrative relative valuation method and arrived at a target price of limited downside (in % terms). Hence, we have a watch stance on the stock at the current market price of $1.57, down 9.51% on 11^nd June 2020.

 
AIZ Daily Technical Chart (Source: Refinitiv, Thomson Reuters)
 
 

Novatti Group Limited

NOV Details

Integration of Emersion Outperforms Expectations: Novatti Group Limited (ASX: NOV) is a leading digital banking and payments company. In a recent update on 11^th June 2020, it was notified that Peter Pawlowitsch, Paul Burton and Kenneth Lai, directors in the company, acquired 600,816, 263,158 and 197,368 ordinary shares, respectively.

Partnership with Alipay: The company has partnered with Alipay, to add its China-focused, cross-border payments platform, ChinaPayments, to the main page of Alipay’s app, which will enable Alipay users to make easy bill payments within the app. ChinaPayments enables Chinese residents to pay Australian BPAY bills using Chinese currency.

Shareholder Update: On 9^th June 2020, the company notified regarding a change in the voting power of Corangamite Pty Ltd from 11.19% to 6%.

Integration of Emersion: The company completed the smooth integration of Emersion, following its acquisition in April 2020. Following the acquisition, the business continued to performance strongly with combined results for April & May including invoicing more than $300,000 and signing of six new customers with contracted service values of more than $250,000 over the next 3 years.     

March Quarter Highlights: Revenue for the quarter was the strongest on record and stood at $3 million, representing an increase of over 21% on QoQ basis. The company’s cash flow also strengthened during the period, with a balance of $3.091 million at the end of the quarter. The company did not witness any considerable slowdown in core processing activity, owing to the digital nature of the business.


Growth in Revenue (Source: Company Reports)
 
Outlook: The company will continue to adopt a prudent approach to cashflow management and is targeting to achieve greater cost efficiencies and generate further savings to navigate through the impact of COVID-19. The company is continuously eyeing strategic opportunities and is planning to cement larger deals.

Stock Recommendation: The stock of the company gave positive returns of 66.67% in the last three months and is currently inclined towards its 52-week high level of $0.27. The acquisition and integration of Emersion has delivered results beyond expectations and has provided a strong platform for ongoing sales. On a TTM basis, the company has an EV/Sales multiple of 4.3x, as compared to the industry median of 2.2x. We presume that most of the developments are priced in at the current juncture. Hence, considering the above factors and current trading level, we have a wait and watch stance on the stock at the current market price of $0.235, down 6% on 11^th June 2020.

 
NOV Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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