Qantas Airways Limited

QAN Details

H1FY21 Performance Update: Qantas Airways Limited (ASX: QAN) provides international and domestic air transportation services. The market capitalisation of the company as on 25 February 2021 stood at ~$9.44 billion. The company has announced its H1FY21 results recently and has reported an underlying EBITDA of ~$86 million. The impact of COVID-19 pandemic can be seen in its operations, as it reported a statutory loss before tax of $1.47 billion during the period. However, the domestic airlines delivered positive underlying cash flow despite flying ~30% of pre-COVID levels. The loss in Qantas International has been offset by impressive Qantas Freight performance and the company has witnessed strong cash generation from Qantas Loyalty during the period. QAN has a net debt of $6.05 billion as on 31 December 2020 and total liquidity of $4.2 billion.

H1FY21 Financial Performance (Source: Company Reports)

Outlook: The Group plans to restart international flying from October 2021. It is on track to deliver $0.6 billion in structural cost benefits in FY21, $0.8 billion by FY22, and ~$1 billion in annual cost improvements from FY23 onwards.

Stock Recommendation:  The company reported cash and equivalents of $2,606 million as on 31 December 2020. As per ASX, the stock of QAN is trading above its average 52-weeks’ levels of $2.030-$5.960.  The stock of QAN gave a positive return of ~33.15% in the past six months and a positive return of ~6.91% in the past one month. On a technical analysis front, the stock of QAN has a support level of ~$4.412 and a resistance level of ~$5.567. On a TTM basis, the stock of QAN is trading at an EV/EBITDA multiple of 10.7x, lower than the industry average (Industrials) of 13.9x. Considering the current trading and valuation levels, expected improvement in business metrics with the ease of restrictions and recovery in passenger demand, we recommend a 'Hold' rating on the stock at the current market price of $5.100, up by 1.796% as on 25 February 2021.

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

Flight Centre Travel Group Limited

FLT Details

H1FY21 Financial Update: 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 as on 25 February 2021, stood at ~$3.25 billion. The company has recently declared its H1FY21 results and reported a TTV of $1.5 billion during the period. There was an underlying loss before tax of $247.2 million, owing to the impact of the COVID-19 pandemic on its operations. However, there have been positive signs, emerging with the company experiencing revenue growth during the December month. There was an improvement in the December operating cash outflow to $30 million from $43 million in July 2020. The cash position stood at $1,680 million as on 31 December 2020.

Result Overview 1HFY21 (Source: Company Reports)

Outlook: The company has experienced significant pent-up demand in its services and is expecting strong and immediate rebounds in leisure and corporate activity, once restrictions are lifted or eased.

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

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:  The removal of most of the restrictions in UK by June 2021 augurs well for the company as it generates a significant part of the TTV from this region. As per ASX, the stock of FLT is trading below its average 52-weeks’ levels of $8.560-$33.262.  The stock of FLT gave a positive return of ~41.41% in the past six months and a positive return of ~17.81% in the past one month. On a technical analysis front, the stock of FLT has a support level of ~$14.041 and a resistance level of ~$21.06. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). For the purpose, we have taken peers such as Corporate Travel Management Limited (ASX: CTD), Helloworld Travel Limited (ASX: HLO), Webjet Limited (ASX: WEB), to name a few. We believe that the company might trade at a slight premium to its peer average EV/Sales (NTM Trading multiple), considering the pent-up demand in its services and expected accelerated TTV recovery in H2FY21 with large profile wins in the corporate segment. Considering the current trading levels, expected upside in valuation, control on cost base and easing of lockdown restrictions in its key markets, we recommend a 'Hold' rating on the stock at the current market price of $17.79, up by 8.873% as on 25 February 2021.

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

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