Qantas Airways Limited

 
QAN to Focus on Cost Reduction Initiatives:Qantas Airways Limited (ASX: QAN) was founded in 1920 and is one of the popular airline brands in Australia. The Australian Competition & Consumer Commission (ACCC) recently proposed to grant authorisation to Qantas, BP Australia and Independent BP petrol stations, to collectively participate in the BP Rewards, Qantas Frequent Flyer and Qantas Business Rewards Programs.
 
Highlights of Q1FY20:Total revenue for the first quarter of FY20 increased by 1.8%, from the previous quarter to US$4.56 Bn, primarily due to robust Qantas International performance. It has also completed the first of its 12 Airbus A380 cabin upgrades, thereby reporting a 27% increase in premium seating to meet the increased demand and enhance the overall economics of these aircrafts. The company also collaborated with BP, to add loyalty management abilities to its offerings. The partnership enables the customers to earn Qantas Points incentives.
 
Dividend and Financial Performance:The company declared a dividend of 13 cents per share on ordinary fully paid shares, which was paid on September 23, 2019. Total dividend paid amounted to $204 million. The company has also planned for an off-market buyback of 79.7 million shares, which will take returns to shareholders to more than $600 million for the half.
 

Returns to Shareholders (Source: Company Reports)
 
What to Expect:The company is expecting fuel cost to be $3.98 billion in FY20. It expects Group capacity to increase in the range of 0.5% to 1% in the first half of FY20, backed by growth in both domestic and international flying. The company is on track to offer transformation benefits of at least $400 million in FY20. In the second half, the company will be focused on cost reduction initiatives. Total domestic capacity is expected to increase by 1% in the second half of FY20. Cost reduction initiatives, transformation targets, reduced complexities and overall operational efficiencies are expected to support sales growth for Australian airline company.
 
Stock Recommendation:As per ASX, the stock gained 34.57% in the past 6 months. In FY19, gross margin and ROE of the company stood at 53.2% and 24.1%, higher than the industry median of 39.7% and 5.2%, respectively. This indicates that the company is managing its costs effectively. Considering the performance in first quarter of FY20, trading update, decent outlook and current trading levels, we give a “Hold” recommendation on the stock at the market price of $7.230, down 0.687% as on 26 November 2019. 
 
 

Afterpay Touch Group Limited

 
Decent Outlook Across all Markets:Afterpay Touch Group Limited (ASX: APT) is a technology-driven payments company providing its services throughout Australia, United States, United Kingdom and New Zealand. The market capitalisation of the company stood at ~$8.25 Bn as on 26^th November 2019. Recently, the company updated that it has submitted the final audit report in relation to Afterpay Pty Ltd to AUSTRAC, stating that majority of the matters listed in the AUSTRAC notice have been addressed. The company also stated that it will action on all the recommendations from the Independent Auditor.

Business Update: The company recently provided an update for the four months ended 31 October 2019. Underlying sales for the period stood at $2.7 billion, up 110% in comparison to pcp and 23% in comparison to the four months ended 30 June 2019. Active customers at the end of the period stood at 6.1 million, up 137% in comparison to prior corresponding period. Active merchants as at 31 October 2019 came in at 39,450, up 96% in comparison to prior corresponding period.
 

Performance Highlights (Source: Company Reports)
 
Market Outlook:In the UK market, the company has entered into a partnership with Mark & Spencer which is expected to contribute significantly to the UK performance over time. In the update for the 4 months ended 31 October 2019, the company notified that merchant revenue margins in the US are ahead of FY19 levels on a year to date basis. In Australia, the company has entered into an agreement with eBay for its services to be offered in the latter’s Australia marketplace CY20 onwards.
 
Stock Recommendation:As per the ASX, the stock gained 36.40% in the past 6 months. Currently, the stock is trading close to its 52-weeks’ high level of $37.410. Gross margin of the company stands at 77.4%, higher than the industry median of 76.2%. Debt-to-Equity ratio stood at 0.08x, lower than the industry median of 0.56x. Considering the trading update for the first 4 months of FY20, outlook for the markets, margins and current trading levels, we have a wait and watch stance on the stock at the market price of $32.190, down 1.379% on 26 November 2019.

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