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VAH Details
Operational headwinds leading to losses:Virgin Australia Holdings Ltd (ASX: VAH) reported its fourth quarter update with a statutory loss after tax of $224.7 million for FY16. The fourth quarter loss was of the order of $228.4 million owing to efficiency expenses and charges related to its Better Business program. On the other hand, the underlying profit before tax was $41 million for FY16, which is in line with the previous guidance and an improvement over FY15. The losses seem to suggest operational headwinds owing to challenging market conditions while the company aims to save around $300 million on an annual basis from its Better Business program. For March Quarter of 2016, the company reported a statutory loss of $58.8 million, which is a decline of $30.5 million as compared to the third quarter of 2015. The decline in statutory losses was on account of restructuring expenses. VAH had recently offered 1 for 1 non-renounceable pro rata ordinary shares at $0.21 per new share. Issue size of the offer is $852 million but the issue price was at 29% discount to the market price of $0.295 as on June 14, 2016. Virgin Australia Holding has also announced $159 million private placement to HNA Innovation, leading to the total proceeds of $1011 million. HNA Alliance would accelerate the VAH’s access to the Chinese travel market. Meanwhile, the board came out with new strategy focused on operational and capital efficiency. VAH is restructuring its fleet size by removing E190 aircraft from the fleet over the next three years. Furthermore, Air New Zealand (ANZ) sold its 19.98% stake in VAH to Nanshan Group. Meanwhile, ANZ has provided a loan facility to VAH.
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Operating performance (Source: Company Reports)
On the other hand, the company expects to incur non-cash balance sheet impairments in the range of $150 million and $200 million during the period to 30 June 2019. VAH stock fell over 52.2% during this year to date (as of July 27, 2016), and we believe the stock pressure would continue in the coming months given the ongoing economic turmoil. Moreover, Virgin would also face tough competition from other airline players and is also exposed to oil volatility. In fact, soft consumer demand and resources downturn led the company cutting down its capacity by 5.1% in the June quarter. Based on the foregoing, we give a “Sell” recommendation on the stock at the current market price of $0.215
VAH Daily Chart (Source: Thomson Reuters)
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