Qantas Airways Limited

Outlook for 2018 & Chairman Succession Plan: Qantas Airways Limited’s (ASX: QAN) stock has risen 15.86% in three months as on July 31, 2018. The company has updated that as per the Qantas Sale Act 1992 (Cth) and the Qantas Constitution, the foreign persons are permitted to hold relevant interests of up to 49% of the issued share capital of Qantas. Further, as per ASX Listing Rule 3.1, QAN will have to notify the ASX when foreign persons hold relevant interests in QAN equal to or exceeding 44%, and to update the ASX when that level of foreign ownership changes by more than 1% or again falls below 44%. On the other hand, for the third quarter 2018, the company has delivered 7.5% growth in the total revenue to $4.25 billion compared with the same period last year, and Group Unit Revenue (RASK) rose by 6.0 per cent. Group Domestic Unit Revenue grew by 8.0 per cent compared to the prior corresponding period due to the strong demand across key markets, including continued recovery of the resources sector and gains within the small-to-medium enterprise segment. Group International Unit Revenue also grew by 5.2 per cent due to an underlying demand growth and higher load factors, as well as the benefits of ongoing network adjustments to better match demand. Moreover, QAN has affirmed its existing outlook for capacity, fuel costs, capital expenditure and transformation benefits in the second half of FY18. For a full year 2018, QAN expects Underlying Profit before tax of between $1.55 billion and $1.60 billion. Further, at the end of April 2018, QAN has hedged approximately 70 per cent of its expected fuel costs for FY19 and retains significant participation to falls in oil price. Furthermore, the ongoing transformation as well as capacity and revenue management will help mitigate the impact of higher fuel costs. Additionally, QAN has ordered six additional Dreamliners for Qantas International and accelerated retirement of remaining 747s by end-2020. Current on-market share buy-back is approximately 50% complete. In addition, QAN’s Chairman Leigh Clifford will leave the company in October 2018 and Richard Goyder, will be the new Chairman. Meanwhile, QAN is trading at a reasonable P/E of 12.75x. Based on the foregoing, we give a “Buy” recommendation on the stock at the current price of $ 6.650.


Underlying Profit Before Tax (Source: Company Reports)
 

Corporate Travel Management Ltd

Acquisition of Lotus Travel Group Limited, Hong Kong: Corporate Travel Management Ltd (ASX: CTD) is acquiring 75.1% of Lotus Travel Group Limited, Hong Kong and the company’s CTM Asian partners Ever Prestige Investments Limited (EPI) is acquiring the remaining 24.9%. EPI currently holds 24.9% of Wealthy Aim Investments Limited, which is the holding company of CTM’s Asian travel business. The acquisition is expected to be effective in October 2018 and is expected to contribute 9 months EBITDA in FY19 of AUD 4.0m with a full annualised contribution of approximately AUD 5.0m. Moreover, after the acquisition CTD will become the leader in Hong Kong having TTV of approximately AUD2.5b. Further after combination, it can become a leader in the Greater China market. Additionally, the acquisition is for a base consideration of HKD300m (AUD50m) which is approximately 10x CY17 EBITDA. The CTD’s 75.1% share acquisition will be funded through a share placement of 1.554m fully paid ordinary shares at $25.75 per share, raising total of AUD40.0m. CTD intends to issue the shares as per Listing Rule 7.1. In addition, CTD expects to deliver full year EBITDA at or slightly above AUD 125m, which is the upper end of FY18 guidance. Meanwhile, CTD stock has risen 15.83% in three months as on July 31, 2018. Based on the foregoing, we give a “Hold” recommendation on the stock at the current price of $28.700.
 

Flight Centre Travel Group Ltd

Serko signed a Letter of Intent (LOI) with FLT:  Flight Centre Travel Group Ltd.’s (ASX: FLT) stock fell 0.809% on August 1, 2018 while the company signed a Letter of Intent (LOI) with Serko Limited. As per LOI, the parties can negotiate a contract variation incorporating the agreed principles set out in the LOI, intended to be effective 1 September 2018. This would extend the existing partnership with FLT’s corporate brands across Australia, New Zealand and Asia through to April 2022 at a minimum, and also includes an expansion in territory across North America to include USA, Canada and Mexico. Further, under the LOI, Serko is immediately entitled to receive an ongoing development contribution from FLT through to April 2019, at a minimum. FLT will be able to launch a unique product based on Serko’s latest online travel management technology. Serko has raised its FY19 guidance range for revenue growth to 20% - 30% above FY18 (up from previous guidance of 15% – 30%) and expects to deliver further revenue growth in FY20. On the other hand, FLT in the first half delivered 8.7% rise in TTV to $10.16 billion (9.3% in constant currency). The revenue has increased by 5.4% to $1.37 billion, which led to a lower overall income margin. The Net profit after tax (NPAT) grew by 37.2% to $102.2million due to USA tax rate changes and FLT's strong performance in the UK, which also operates with a lower corporate tax rate. However, during 2H, profit growth is expected but the accelerated growth rate achieved during the 1H is unlikely to be maintained. This is due to the fact that FY17 2H was a comparatively stronger trading period. The Meanwhile, FLT stock has risen 22.70% in three months as on July 31, 2018  and is trading at a high P/E of 26.57x. Therefore, we give an “Expensive” recommendation on the stock at the current price of $67.460.

 
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