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Are ASX-listed Travel Stocks Bucking the Trend Amid COVID-19 Qualms?

  • April 24, 2020 08:46 PM AEST
  • Hina Chowdhary
    Director, Equities Research Hina Chowdhary
    1378 Posts

    Hina Chowdhary is the Director, Equity Research at Kalkine and has an extensive experience of about 15 years in the area of Research, which includes 5+ years in Equities Research particularly.She has earned a Master of Science degree from the renowne...

Are ASX-listed Travel Stocks Bucking the Trend Amid COVID-19 Qualms?

A virus did not take much time to shut the entire world down, but will a recovery be prolonged?

An honest answer to the above currently is - No one knows. The current economic meltdown, unemployment, and liquidity crunch have had a damaging impact on almost every sector, but the travel and tourism industry seems to be one of the most vigorously affected.

The novel coronavirus outbreak is likely to dent consumer demand for travel stocks and services with people limiting travel adhering to stay-at-home orders. Consequently, the sector, which was already hit by the economic slowdown in 2019, coupled with macro challenges and geopolitical issues, can possibly remain under pressure in the near term.

The Australian economy is battling the restrictions on travel imposed to slow the spread of COVID-19. Owing to lockdowns and the closing of borders, the travel sector has taken a massive hit and investors have noticeably been selling off travel stocks accordingly.

But- not all is grim. Sinusoidal trends are a common trait in stock markets, and there have been days in the past few weeks wherein bearish trends have faded and investor sentiment has noticeably built positively. Following this trend, travel stocks listed on the Australian Securities Exchange did plummet but also ended trade sessions in the green zone.

This firstly depicts that it is too early to make long term judgements on the consequences of the coronavirus outbreak and secondly, the ASX is full of surprises that keep investors intrigued to invest in stocks offered at the exchanges.

In this backdrop, let us look at the developments of 3 travel stocks on the ASX and their current stock stance:

Webjet Limited (ASX:WEB)

We would like to begin with the stock which was the second top gainer on the ASX post market close on 24 April 2020, up by 9.5% quoting $2.50, possibly due to a recent and successful completion of a Retail Entitlement Offer.

WEB, a digital travel business covering global consumer markets (via B2C) and wholesale markets (via B2B) was one of the first OTAs in the Australian market and vouches to be the #1 OTA in Australia and New Zealand since 2010.

On 23 April 2020, the Company announced the positive conclusion of the retail component of its 1 for 1 fast-tracked non-renounceable entitlement offer, fully underwritten. This represents the second stage of the Company’s $346 million equity raising through institutional placement and pro-rata non-renounceable entitlement offer.

The Retail Entitlement Offer raised ~$118 million and closed on 21 April 2020. The Company had received 12,633 valid applications from eligible retail shareholders for their entitlements under the Retail Entitlement Offer for ~50.4 million shares aggregating to ~$86 million.

WEB also bagged eligible applications from 8,324 retail investors for ~27.5 million additional new shares in excess of their entitlement, aggregating to ~$46.7 million. It has been necessary to scale back applications for these 27.5 million additional new shares applied for under the top-up facility (by ~31%), to be done on a pro-rata basis across all applications. Refunds totalling ~$14.5 million will be dispatched to retail shareholders as soon as workable.

The Company’s share registry is presently conducting an audit for final details and allocations and New shares under the Retail Entitlement Offer are expected to be allotted on 28 April 2020 and will begin trading the next day.

Corporate Travel Management Limited (ASX:CTD)

We have another top gainer in our travel stock list today!

The fifth top gainer on the ASX post market close on 24 April 2020, up by 6.8% quoting $9.08, CTD had disclosed its strong liquidity position amid the COVID-19 environment in March 2020 itself.

CTD’s tech-savvy business is fixated on the corporate end, with no retail footprint.

The Company was naturally experiencing a substantial impact to its business post the launch of additional government-imposed restrictions on global travel and chief reductions in domestic capacity. Prudently, it had deferred the payment of its previously announced interim dividend of 18 cents ($19.62 million) until 2 October 2020.

However, it was proactive enough to launch comprehensive cost reduction actions that led to a strong liquidity position, empowering the Company to withstand the crisis period. CTD began a round of cost reductions effective from March 2020 end, of at least $10 million each month.

Reportedly, as on 20 March 2020, the operating cash exceeded the Company’s drawn debt. The Company had also intimated that several of its clients (across regions) are continuing to travel, although at low levels. Moreover, over half of the global TTV is domestic in nature.

Air New Zealand Limited (ASX:AIZ)

Before we dive into the world of our third stock for the day, we are reminded of Hungarian-American billionaire investor and philanthropist George Soros who said that “the markets generally are unpredictable, so that one has to have different scenarios.”

We are reminded of this because unlike our first two selected stocks, the third, AIZ, plummeted by 2.45% post the 24 April 2020 trade session and quoted $1.19. Let us understand what is new with this world-class airline, that aims to connect New Zealand to the globe.

It should be noted that prior to the COVID-19 scenario, AIZ had an annual revenue of ~$5.8 billion and post paying the bills it made a profit of $374 million last year. Owing to the pandemic, the Company has witnessed a globule of over $5 billion dollars (annual revenue shaping up to be less than $500 million as per current booking patterns).

AIZ instigated about commencing the painful process of materially reducing its workforce from the end of March as the severe economic impact of COVID-19 hits the airline. The Company had to cut over 95% of flights in NZ and across the globe, with the only flights functional being the ones that facilitate transport options for essential services personnel and keep supply lines open.

Staff-wise, AIZ could possibly be at least 30% smaller in the days to come.

The Company plans to operate as a domestic airline with restricted worldwide services to keep supply lines open for the predictable future with the hope that the Kiwis welcome domestic travel post lifting of the Level Four Alert. Moreover, the recently announced wage subsidy by the Government, though a short-term measure, may provide some relief to the Company.

It is unquestionable that what we are witnessing are unprecedented and challenging times. But the sporadic rays of hope, anti-viral medicines in pre-clinical and clinical trials, government subsidies and increased philanthropy and stern lockdowns may bear better fruits for the travel sector in the future.

Gold MTF non-AMP



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