Stocks’ Details

Qantas Airways Limited

Decent Financials in 1QFY19: Qantas Airways Limited (ASX: QAN) is the largest domestic and international airline in Australia with its headquarter in Queensland, Australia. It operates under two brands, Qantas and Jetstar. As per the 1Q19 updates, QAN has planned to phase out nine old Boeing fleets by the end of 2020. QAN has hedged 76% of its fuel for FY19 and 39% for FY20 for benefiting from a significant dip in prices. The group is expected to deliver transformation benefits of $400 million in FY19. The company also announced to open a new First Lounge at Singapore Changi Airport with an increase in existing lounge capacity by 60% to be completed by late 2019.

1Q19 Financial Highlights (Source: Company Reports)

Over the past five years, the group reported an improved and better than industry median Revenue Per Mile (RPM) and Total Revenue per Available Seat Mile (ASM)of $0.187 and $0.180 respectively in FY18 as compared to the industry median of $0.119 each. The margins have also improved over the years and are in line with the industry. EBITDA margin and Net margin were reported at 19.2% and 5.7% respectively in FY18 which were same as the industry median.Similarly, the company is generating better returns for its shareholders than its peers as its ROE of 26.2% was above the industry median of 12.1% in FY18.The asset turnover ratio of 0.95x was also above the industry median of 0.60x showing thatthe company is utilizing its assets in a better way than its peers to generate revenue.

In the past three months, the stock has generated a positive yield of 11.61% and is trading at reasonable PE multiple of 10.64x. With the improving and decent margins along with a strong hedge book, we maintain our“Buy” recommendation on the stock at the current market price of $6.00.
 

Virgin Australia Holdings Limited

Better earnings guidance for 1H19:Virgin Australia Holdings Limited (ASX: VAH) is an Australian based airline company. The Group estimates the revenue to grow by 10% in 2Q19 with the underlying Profit Before Tax for 1H19 to be above $100 million representing a growth of ~22%.


ChartShowing Available Seats Kilometres (Source: Company Reports)

Over the past five years, the group reported an improved and better than industry median Revenue Per Mile (RPM) and Total Revenue per Available Seat Mile (ASM)of $0.191 and $0.180 respectively in FY18 as compared to the industry median of $0.119 each. The EBITDA margin was reported at 10.3% which has improved over the years but is below the industry median of 19.2% but the net margin has declined and is reported negative. Similarly, the company is generating negative returns to its shareholders as it reported negative ROE in FY18.The asset turnover ratio of 0.86x was above the industry median of 0.60x showing thatthe company is utilizing its assets in a better way than its peers to generate revenue. The group has lower than industry EV/EBITDA multiple of 4.5x as compared to the industry median of 6.1x showing the stock to be undervalued.

During the past three months, the stock has generated a negative yield of 12.20% and is currently trading at the 52-week lower level. The Relative Strength Index is seen in a positive position, and the price is currently trading near to the lower band of the Bollinger band. With the better earnings guidance for 1H19, lower EV/EBITDA multiple, bullish indication through the chart, we have a wait and watch stance on the stock at the current market price of $0.175 and we suggest to investors that they should wait for a few more trading sessions to get the better entry levels.
 

Webjet Limited

Partnership with Thomas Cook:Webjet Limited (ASX: WEB) is an Australian based B2C digital travel business. It operates through two brands, Webjet and Online Republic. Its partnership with Thomas Cook will move to a volume-based revenue arrangement from 1 June 2019 which will significantly increase its revenue and EBITDA.


FY18 Financial Highlights (Source: Company Reports)

Over the past five years,the margins of the company have declined. During FY18, the company reported EBITDA and Net margin of 11.9% and 5.4% respectively as compared to FY14 margins of 21.6% and 19.9% respectively. Similarly, the returns to its shareholders have declined as it reported a fall in ROE by 1,700 bps to 12.6% in FY18 as compared to 29.6% in FY14.Only the asset turnover ratio of 0.97x in FY18 has improved from 0.72x in FY14 showing the company is improving its utilizing of assets in a better way to generate revenue.

The company has ~135.6 million shares outstanding with the market cap of ~$1.59 billion, and an annualized dividend yield of 1.71%. During the past one year, the stock has generated a positive yield of 17.22%. Today, the stock was up by 2.477% as compared to the previous close, currently trading at the price of level $12.00. With the declining margins but higher growth potential through the partnership with Thomas Cook, we have watch view on the stock at the current market price of $12.00.
 

Flight Centre Travel Group Limited

Acquisition of Casto Travel Inc’s US operations:Flight Centre Travel Group Limited (ASX: FLT), based in Australia, is a leading travel agency group with company-owned operations in 23 countries. Recently the company agreed to acquire Silicon-Valley based Casto Travel Inc’s US operations. The company expects PBT of $140 million to $150 million for 1H19 and $390 million to $420 million for FY19.


FY18 Financial Highlights (Source: Company Reports)

Over the past five years,the margins of the company have marginally declined and below the industry medians. During FY18, the company reported EBITDA and Net margin of 16.4% and 9.0% respectively as compared to the industry median of 21.0% and 10.5% respectively. However, the company is generating better returns for its shareholders than its peers as its ROE of 17.7% was above the industry median of 13.0% in FY18.The asset turnover ratio of 0.89x was also above the industry median of 0.48x showing thatthe company is utilizing its assets in a better way than its peers to generate revenue.

The company has ~101.09 million shares outstanding with the market cap of ~$4.4 billion, an annualized dividend yield of 3.83% and a beta of 0.65x (5-Years, Monthly). It has a higher P/E multiple of 16.72x as compared to the industry median of 10.4x showing the stock to be overvalued. During the past three months, the stock has generated a negative yield of 13.51%. Today, the stock was down by 0.735% as compared to the previous close, currently trading at the price of level $43.230. The Relative Strength Index is seen towards a negative position, and the price is currently trading above the Simple Moving Average line of the Bollinger band. With the declining margins, higher than industry P/E multiple and a bearish indication through the charts, we, therefore, maintain our“Expensive” recommendation on the stock at the current market price of $43.230.


 
Stock Price Comparative Chart (Source: Thomson Reuters) 

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