Flight Centre Travel Group Limited

FLT Details

Growth in Global Corporate Business: Flight Centre Travel Group Limited (ASX: FLT) is engaged in travel retailing in the leisure and corporate travel sectors. The market capitalisation of the company stood at $2.57 Bn as on 5^th November 2020. During September 2020, the company reported revenue of $25 million, which is 12% above its normal level. The corporate business of the company was tracking at 18% of normal revenue during the month. On a week-on-week basis, the company experienced a rising trend in its sales in Q1 FY21, primarily due to a gradual easing of COVID-19 related restrictions.

During FY20, the company reported an underlying loss before tax of $510 million. The company incurred these losses between March-June period, wherein Government locked down borders to curb COVID-19 spread. Prior to the lockdown period (8 months ended 29 February 2020), the company recorded an underlying profit of $150 million. Despite the disruption created by COVID-19, the company’s global corporate business managed to deliver underlying profit before tax of $74 million. The segment also secured a record pipeline of new accounts, which supported the business in establishing a strong platform for further organic market-share growth.

Financial Summary (Source: Company Reports)

Outlook: Going forward, the company is likely to undertake prudent approach to manage liquidity. In addition, the company continue to look at options to extend and increase flexibility with respect to liquidity. In late FY21, the company is expecting to return to profit on a month-to-month basis considering the global corporate business’s heavy domestic weighting, low-cost base and strong sales trajectory and account pipeline.

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:  As on 30^th September 2020, the company had liquidity of around $1 billion. In the past three months, the stock has provided a positive return of 38%. The stock of FLT is trading towards its 52-week low levels of $8.560, offering decent opportunities for accumulation. On a technical analysis front, the stock of FLT has a support level of ~$9.848 and an immediate resistance level of ~$14.803. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price, which is offering an upside of low double-digit (in percentage terms). Therefore, considering the growth in corporate business, prudent approach to liquidity management and current trading levels, we give a “Buy” recommendation on the stock at the current market price of $13.820, per share, up by 6.883% on 5^th November 2020.

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

IOOF Holdings Limited

IFL Details

Commencement of Review by ACCC: IOOF Holdings Limited (ASX: IFL) provides financial advice and distribution, along with portfolio and estate administration, and investment management solutions. The market capitalisation of the company stood at ~$1.94 billion as on 5^th November 2020. On 26^th October 2020, the company notified that it had submitted an application to the Australian Competition and Consumer Commission (ACCC) for an informal merger clearance with respect to the previously announced proposed acquisition of NAB’s wealth management business (MLC). However, ACCC has commenced the review of the proposed acquisition. In addition, the company has also received approval from all lenders in the existing senior debt funding facility. The company added that the merger would deliver significant benefits for members, investors, and advisers. In another update, the company noted financial results for the year ended 30^th September 2020, wherein cash earnings stood at $62 million.

Q1FY21 Key Highlights: As on 30th September 2020, the company reported total FUMA (Funds Under Management, Advice and Administration) of $202,826 million as compared to $202,297 million as on 30th June 2020, reflecting a rise of $529 million. The financial advice business reported net inflows of $110 million, while investment management recorded a net outflow of $62 million.

Key Financials (Source: Company Reports)

Outlook: With respect to Pensions & Investments business, the company is expecting run rate synergy of $43 million in FY21. The company has scheduled to conduct its Annual General Meeting on 25 November 2020.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Valuation (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: As on 30^th June 2020, the cash and cash equivalents of the company stood at $374.7 million. The stock of IFL has corrected 3.17% and 25.91% in the last one and three months, respectively. As a result, the stock is trading towards its 52-week low level of $2.505. We have valued the stock using the price to earnings multiple based illustrative relative valuation and arrived at a target price with an upside of low double-digit (in percentage terms). On a technical analysis front, the stock of IFL has a support level of ~$2.877 and an immediate resistance level of ~$5.179. Therefore, in light of the proposed acquisition of MLC, growth in FUMA during Q1FY21 and current trading levels, we give a “Buy” recommendation on the stock at the current market price of $3.050 per share, up by 2.006% on 5^th November 2020.

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

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