Stocks’ Details

Flight Centre Travel Group Limited

FLT Enters into a Strategic Alliance with TPConnects: Flight Centre Travel Group Limited (ASX: FLT) is a travel retail company, that has exposure in both the leisure and corporate travel sectors. Recently, the company entered into a commercial agreement with TPConnects Technologies LLC, wherein it secured 22.47% interest in the latter’s business. The move will strengthen FLT’s technology roadmap via TPConnects’ travel technology platform and software development resources.
 
Other Recent Updates: Recently, the company announced that it will distribute a dividend of $0.40 per share, with a payment date of April 17, 2020. In another update, the company stated that Robert Anthony Baker, a Director of the company, has acquired ~600 ordinary fully paid shares for a consideration of $19,650.
 
1HFY20 Financial Highlights for the Period Ended 31 December 2019: The company reported total revenue of ~$1,546 million, up 5.8% on y-o-y basis. The business reported TTV of ~$12,399 million as compared to ~$11,155 million in 1HFY19, an increase of 11.2% year over year. FLT reported underlying PBT of ~$103 million, down from ~$140 million in 1HFY19. The company reported cash outflows from operating activities at $136 million during the period.
 

1HFY20 Income Statement Highlights (Source: Company Reports)
 
What to Expect: The company is now anticipating its underlying PBT for FY20 to be in the range of $240 million - $300 million, down from the previous outlook of $310 million - $350 million. The company lowered its FY20 PBT stance owing to COVID-19 impact.
 
Valuation Methodology: P/E Multiple Based Relative Valuation
 

P/E Based Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months
 
Stock Recommendation: The stock is trading at $24.750 with a market capitalization of ~$2.68 billion. Currently, the stock is trading near its 52-week low of $23.790. The stock has generated a negative return of 44.71% in the last six months. Considering the current trading levels, improved TTV and business prospects, we have valued the stock using Price to Earnings based relative valuation method. and arrived at a target price of lower double-digit upside (in percentage terms).  Hence, we give a ‘Buy’ recommendation on the stock at the current market price of $24.750, down 6.604% as on 9^th March 2020.
 

Qantas Airways Limited

Statutory EPS up 3.2% on PCP: Qantas Airways Limited (ASX: QAN) provides travel services across domestic and international locations. The company recently updated that two of its Directors named James Todd Sampson and Paul Ashley Rayner, acquired 2,649 rights and 6,623 rights, for a cash equivalent of $15,800 and $39,500, respectively.

Highlights for the Six Months Ended 31^st December 2019:During the period, underlying profit before tax came in at $771 million, down by 0.5% on the prior corresponding half. Underlying EPS came in at 34.3 cents, representing a rise of 10% on pcp. Statutory EPS stood at 28.8 cents, up 3.2% on pcp. Performance in the first-half was supported by benefits derived from capacity discipline, transformation of the business and a growing market share. As a result, the business sustained amidst difficulties imposed by global freight weakness, disruptions in Hong Kong, etc.


Key Performance Metrics (Source: Company Reports)
 
Outlook: During the second half, the company expects the outbreak of coronavirus to negatively impact the EBIT, with the impact ranging between $100m – $150m. However, the company maintains a healthy stand against its competitors and is optimistic about future performance.

Valuation Methodology: P/CF Multiple Based Relative Valuation

P/CF Based Valuation (Source: Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve

Stock Recommendation: The stock of the company gave negative returns of ~30% in the past 1 month and is currently trading at its 52-week low level of $4.150. Despite the headwinds during the first half, the company managed to report results in line with the previous corresponding half, along with a rise in earnings per share. Being a consistent performer deriving benefits out of efficient cost management, the company delivered around $650 million in dividends during the half. Considering the above factors, we have valued the stock using Price to Cash Flow based relative valuation method and arrived at a target price of lower double-digit upside (in percentage terms).  Hence, we give a ‘Buy’ recommendation on the stock at the current market price of $4.150, down 10.944% as on 9^th March 2020.
 

Webjet Limited

Revenues up 24% in 1HFY20: Webjet Limited (ASX: WEB) is involved in offering a wide range of online travel booking services for flights, hotels, car hire, tours.Recently, the company announced that it will distribute a dividend of $0.09 per share, with an ex-date of March 25, 2020 and payment date of April 16, 2020.
 
1HFY20 Key Highlights for the Period Ended 31 December 2019: During the period, the company reported revenue of $217.8 million, up 24% on y-o-y basis. The company reported underlying EBITDA of $86.3 million, up 43% on y-o-y basis, while the EBITDA margin stood at 39.6% during 1HFY20, up 523 basis points on a year over year basis. The company reported NPAT of $43.2 million, up 36% from 1HFY19. Total TTV for the period came in at $2,334 million, an increase of 25% year over year.
 

1HFY20 Financial Highlights (Source: Company Reports)
 
Outlook:For FY20, the company lowered its underlying EBITDA guidance from a range of $162 to $172 million after application of AASB16, to $147 to $165 million, depicting growth in the range of ~14% - ~28% over FY19. The company lowered its outlook owing to negative impact on its bookings and TTV across all the businesses on the back of COVID-19 outbreak. This will also impact the company’s 2HFY20 EBITDA, which is expected to witness a reduction between $7 and 15 million.
 
Valuation Methodology: P/CF Multiple Based Relative Valuation

P/CF Based Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months
 
Stock Recommendation: As per ASX, the stock is trading close to its 52-week low level of $6.730. The stock has a market cap of $1.1 billion with an annual dividend yield of 2.76%. Considering the trading levels and decent growth opportunities, we have valued the stock using Price to Cash Flow based relative valuation method and arrived at a target price offering lower double-digit upside (in % terms). Hence, we give a “Buy” recommendation on the stock at the current market price of $6.74 per share, down by 17.199% on 9^th March 2020.
 

Virgin Australia Holdings Limited

 
Revised Outlook due to External Challenges:Virgin Australia Holdings Limited (ASX: VAH) operates a domestic and international passenger cargo airline business and offers a variety of aviation products.
 
S&P Global Ratings Outlook Update: The company recently updated that S&P Global Ratings has revised its outlook on Virgin Australia, from stable to negative, due to a combination of factors including COVID-19, bushfires and softer economic conditions.
1HFY20 Update: During the first half ended 31^st December 2019, the company reported post-AASB 16 revenue amounting to $3,118.2 million. Statutory loss after tax came in at $88.6 million, post AASB-16, indicating the impact of one-off costs for the acquisition of Velocity Frequent Flyer, workforce reductions and write-off of assets. At the end of the period, the company reported a cash balance of $1,107.6 million.
 

Financial Results (Source: Company Reports)
 
Outlook: Group earnings in the second half are expected to see a negative impact in the range of $50 - $75 million, with FY20 revenue to be flat in comparison to pcp. Going forward, the company is looking to derive benefits out of the strategic changes in pipeline. It aims to reduce its fleet size through exit from aircrafts, which will offer a simplified platform at times of challenging market conditions. Moreover, it is aiming for capacity reduction through withdrawal of unprofitable routes.
 
Stock Recommendation:The stock of the company has corrected 37.86% in the past 1 month and is currently trading near its 52-week low level of $0.075. While issuing the outlook on the company, S&P Global Ratings considered the challenging industry scenario that is expected to impact the earnings for the next six months. There are chances of adjusted debt to EBITDA to reach 6x for FY20, with recovery expected in FY21. On the valuation front, the stock has EV/Sales multiple of 0.9x as compared to the industry median of 1.5x. Considering the strategic plans to improve profitability, potential impact of COVID-19, and revised S&P outlook, we have a watch stance on the stock at the current market price of $0.080, down 8.046% on 09^th March 2020.
 
 
Comparative Price Chart (Source: Thomson Reuters)
 
While the above companies have been impacted due to the recent outbreak of coronavirus, there lies a relief in the form of recent plunge in oil prices. Prices fell by more than 30% on 9^th March 2020, as Saudi Arabia triggered a price war against Russia after the latter denied being a participant to the battle against Coronavirus and chose to slash production. The fall in prices has raised a spark of optimism for the travel giants, amidst recent announcements pertaining to revised financial guidance due to the potential impact of COVID-19 on the bottom-line, reduced capacity across Asia, and a setback in demand. As fuel expenses constitute a substantial proportion of costs for an airline, a decline in prices indicates good news for the sector. Qantas Airways, for example, reported strong operating cash flows in 1HFY17, as a result of the positive impact of lower fuel prices on costs and revenue.

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