Stocks’ Details

Qantas Airways Limited

FY20 Financial Highlights: Qantas Airways Limited (ASX: QAN) is engaged in the operation of international and domestic air transportation services, the sale of worldwide and domestic holiday tours and associated support activities. As on 9 November 2020, the market capitalisation of the company stood at ~$8.58 billion. During FY20, the company reported a decline of 21% in total group revenue of $14.25 billion due to the government-imposed travel restrictions and border closures. In the same time span, the company reported an underlying profit before tax of $124 million and enhanced its liquidity with cash and cash equivalents of $3.5 billion and total liquidity of $4.5 billion.

FY20 Financial Highlights (Source: Company Reports)

Outlook: The company expects decent domestic demand for freight business and is likely to deliver healthy cash flow contributions from Qantas Loyalty in FY21. The company may report a significant underlying loss in FY21 and may right size the business, restructure its cost base and recapitalize its balance sheet. The company has introduced a Three-Year Recovery Plan which targets a total of $15 billion in savings over the three years to FY22-23.

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

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: The easing of restrictions will improve the overall business conditions for the company and will position it better for future opportunities and recovery. The stock of QAN is inclined towards its 52-weeks’ low levels and has provided a return of 36.44% in the past three months. On a technical front, the stock of QAN has a support level of ~$2.12 and a resistance level of ~$8.72. We have valued the stock using the EV/Sales multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in percentage terms). For the said purposes, we have considered Flight Centre Travel Group Ltd (ASX: FLT), Air New Zealand Ltd (ASX: AIZ), Alliance Aviation Services Ltd (ASX: AQZ), etc., as peers. Considering the current trading levels, decent returns in the past three months and modest long-term outlook, we give a “Buy” recommendation on the stock at the current market price of $4.680, up by 2.857% on 09 November 2020.

Austal Limited

Austal Vietnam Delivers 94 Metre High-Speed Catamaran Ferry: Austal Limited (ASX: ASB) is involved in the designing, manufacturing, and support of high-performance vessels for commercial and defense customers worldwide. As on 9 November 2020, the market capitalisation of the company stood at ~$999.57 million. The company has recently announced that Austal Vietnam has delivered the 94 metre high-speed catamaran fully constructed the first vessel at the Vung Tau shipyard, for the National Infrastructure Development Company. This is an achievement for the company and will allow the company to focus on its defense and commercial vessel capabilities in strategic locations.

FY20 Results Highlights: During FY20, revenue of the company went up by 13% to $2,086 million, from $1,851 million in FY19. In the same time span, EBIT went up by 41% to $130.4 million, and NPAT stood at $89 million, reflecting an increase of 45% on the pcp. The company declared a final dividend of 5 cents per share, bringing total dividend to 8 cents per share. The company retains an order book of $4.3 billion.

Financial Summary (Source: Company Reports)

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

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

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

Stock Recommendation: The company expects FY21 revenues and EBIT to be ~$1.8 billion and ~$125 million, respectively. The stock of the company has corrected by 19.76% the last three months. On a technical analysis front, the stock of ASB has a support level of ~$2.48 and a resistance level of ~$3.94. We have valued the stock using P/E multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in percentage terms). For the purpose, we have taken peers like Electro Optic Systems Holdings Ltd (ASX: EOS), Monadelphous Group Ltd (ASX: MND), GUD Holdings Ltd (ASX: GUD), etc., as peers. Considering the decent financial performance, delivery of 94 Metre High-Speed Catamaran Ferry, and guidance for EBIT and revenues, we give a ‘Buy’ recommendation on the stock at the current market price of $2.760, down by 0.720% on 09 November 2020. 

Alliance Aviation Services Limited

BHP Olympic Dam Contract Extension: Alliance Aviation Services Limited (ASX: AQZ) provides transportation to the mining, energy, tourism, and government sectors both domestically and internationally. As on 9 November 2020, the market capitalization of the company stood at ~$547.17 million. The company has recently signed a contract extension for a period of three years with BHP Olympic Dam which also retains extension options for two 12-months, permitting a full term of up to five years.

FY20 Financial Highlights: During FY20, the company reported healthy results with a growth of 7.8% in total revenue to $298.2 million from $276.7 million in FY19. This was mainly due to additional flights for several clients. In the same time span, EBITDA of the company went up by 18.5% to $78.5 million. Higher profitability resulted in higher operating cash flows of $44 million. The company also reported a healthy balance sheet with net debt of $46.1 million with the gearing ratio of 0.69 EBITDA.

FY20 Financial Highlights (Source: Company Reports)

Outlook: The company retains a decent outlook for the FY21 based on the continued demand for its services from an increased client base. The company also expects higher contract revenue and is focusing on extracting maximum value from its large inventory holding.

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

EV/EBITDA Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: The company is consistently delivering on its operating metrics. However, the company seems to have reached its market potential and is trading close to its 52-weeks’ high level of $3.77. The stock of AQZ gave a negative return of 3.04% in the past one month. On a technical front, the stock of AQZ has a support level of ~$2.81 and a resistance level of ~$3.7. We have valued the stock using the EV/EBITDA multiple based illustrative relative valuation approach and have arrived at a downside of lower single digit (in % terms). Considering the current trading levels, volatile returns in the past one month, softer market conditions and key investment risks, we suggest investors to wait for a better entry level and hence, give an ‘Expensive’ rating on the stock at the current market price of $3.50, up by 2.639% on 9 November 2020.  

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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