Australia forging Level 4 barricade as Coronavirus wreaks havoc

The exponential rise in cases of Covid-19 pandemic has tumbled the global financial markets, including the blue-chip indices. As per the latest update from International Air Transport Association (IATA), the aviation sector is likely to witness a plunge of 55 per cent or $314 billion in 2020 in annual passenger revenue, in comparison to the previous year. Let’s discuss an airline group, EasyJet along with a publishing company, Informa PLC. Both the Companies have released their trading update today, and the stock price of EasyJet PLC and Informa PLC surged over 6.9 percent and 1.4 percent, respectively (at the time of writing, GMT 8.18 AM). Let’s understand the impact of their results in view of their business models, strategies and financial performances.

EasyJet PLC (LON:EZJ)

EasyJet PLC is an FTSE 100 listed, low-cost European point-to-point airline company. The company has four geographic segments, which includes the United Kingdom, Southern Europe, Northern Europe and Other. The group has a workforce of over 15,000 employees and a fleet of 331 aircrafts. The group serves around 96 million customers across 159 airports.

(Source: Company Website)

Strategic Priorities to Fulfil the Purpose

• Holding a Leading Position in Primary Airports
  • Providing a great deal on pricing.
  • Availability of network everywhere.
• Winning the Customers’ Loyalty
  • Introducing the compelling customers’ loyalty programme.
  • Consistently making customers’ journey affordable and enjoyable.
• Value by Cost Efficiency
  • Investing the resources where it is most required by customers.
  • Reduce cost without impacting the environment negatively.
• The Right People
  • Providing a delightful customer experience.
  • Continuously inspiring the staff to learn and grow.
• Innovation by Using the Data
  • Leveraging data to make smart decisions.
  • Understanding customers and demand requirements for operational resilience.

Significant Recent Actions to Combat the Crisis of Coronavirus

6th April 2020: The group announced that it had successfully issued GBP 600 million of Commercial Paper through the Covid Corporate Financing Facility (CCFF). It had also requested to withdraw USD 500 million of revolving credit facility. Subsequently, EasyJet is likely to hold cash reserves of £2.3bn.

30^th March 2020: EasyJet had to keep its entire fleet grounded due to the travel restrictions imposed by the government.

8^th November 2019: The group had announced the acquisition of Thomas Cook's slots at Bristol Airport and Gatwick Airport for GBP 36 million.

Trading Update for the Six Months Ending 31^st March 2020 – Reflecting the Performance On-Track

The business has delivered a decent H1 trading performance, with total revenue surged 1.6% to £2,382 million (H1 2019: £2,343m), partly offset by decreasing seat capacity of 7.6% to 42.7 million (H1 2019: 46.2m). The revenue is also reflecting the impact of Flights cancelled in March due to Coronavirus.

• EZJ has been decisive in meeting the challenges of COVID-19 to ensure the company can ride out a prolonged grounding by driving down costs, securing 2 billion pounds of additional funding, and delivering vastly reduced capex while retaining fleet flexibility.
• Led by reductions in variable expenses such as airport and fuel charges, the total headline cost is expected to reduce by 1.6% in the first half. Expected underlying cost increase of 5% and was in line with the previous guidance. This increase was driven by several factors including ownership costs, lower capacity growth, crew pay contracts & higher retention levels, among others.
• The impact of COVID-19 drove an additional increase of 4.5% in costs, driven by significantly lower seat capacity, substantial increases in disruption costs, and many flights were being cancelled.
• The company enhanced the liquidity position, testimony to the strength of EasyJet and its balance sheet.

(Source: Annual Report)

Share Price Performance

Daily Chart as of April 16th, 2020, before the market close (Source: Thomson Reuters)

EZJ’s shares, at the time of writing before the market close (at 9:33 AM GMT) on 16th April 2020, were trading at GBX 641.44. Stock's 52 weeks High is GBX 1,570 and Low is GBX 410.

Outlook – Reflecting the level of Continued Uncertainty Created by COVID-19

• The headline loss before tax for the first half is expected to be in the range of £185-£205 million, while the reported loss before tax is likely to be in the range of £360-£380 million in the first half, including the impact between £175 million and 185 million in relation to the over-hedging of FX and fuel. Total capex across FY’20, FY’21, FY’22, including fleet, maintenance and other projects will reduce by approximately £1 billion. The group expect to have generated £1.85-£1.95 billion of total additional liquidity leading to a notional cash balance of around £3.3 billion. For its long-term scenario, the company stay focused on doing what is right for the EZJ’s health and is in a decent position to resume flying when the COVID-19 pandemic is over.

(Source: Trading Update, Company Website)

Informa PLC (LON:INF)

Informa PLC is an FTSE 100 listed, United Kingdom-based media company. It provides specialist digital information, consultancy and research services in over 30 countries, and more than 25,000 businesses worldwide. It was incorporated in the year 1998, and currently, it has over 100 product brands to serve with a workforce of 2,000 people.

The group is operating with five segments:

• Informa Intelligence
• Informa Connect
• Informa Markets
• Taylor & Francis
• Informa Tech

(Source: 2019 Full-Year Presentation)

Strategy to Create Sustainable Value for Shareholders

• The group had introduced the Accelerated Integration Plan (AIP), which includes four phases. Phase 1 comprises of Discovery & Validation, while phase 2 contains Combination. Phase 3 is the completion phase, and Ambition & Creation are covered in Phase 4. These phases contribute to the company’s Accelerated Integration Plan (AIP).

(Source: Company Website)

• The group’s long-term goal is to bring every vertical of business to grow and simultaneously building their capabilities and platforms for future requirements while performing consistently.

Covid-19 Action Plan

16^th April 2020: Informa has proposed the placement of new ordinary shares at 0.1 pence each. The group also affirmed that the placing and subscription shares would not exceed 250,318,000, representing 19.99 per cent of existing issued capital.

26^th March 2020: the group announced that due to ongoing crisis of coronavirus, the Board’s Chairman and Non-executive directors had committed 25 per cent reduction in their remuneration while the Chief executive officer and Financial director have proposed 33 per cent reduction in salary.

Entertainment and Media Industry Overview

As per the report published by some market analysts, the Global Entertainment & Media revenue in the United Kingdom will rise at CAGR of 4.5 per cent, making to GBP 80.5 million industry by 2023. While internet advertising and internet access will generate the maximum amount of revenue. However, the industry has been significantly disrupted by the COVID-19 outbreak; albeit, the fundamentals of the UK media industry remain attractive, and it is likely to revive once the economy reverses to its full movement.

Trading Update – Reflecting the Q1 Results and Further Details on its COVID-19 Action Plan

• In the first quarter of 2020, the company has delivered a steady performance, with subscriptions-related businesses (c.35 per cent revenue) performing well, events-related businesses (approximately 65 per cent revenue) trading decent previous to emergence of the COVID-19 pandemic, and all Informa China offices re-opened and returned to increasingly normal work pattern.
• In subscriptions-related businesses, the business has shown consistent performance at Taylor & Francis, underpinned by robust subscription renewals. In events-related businesses, the group gave a solid start to the year at Informa Markets, with good performances by major brands in the US; and decent rebooking for Jan/Feb 2021 shown in Healthcare (Arab Health +20 per cent), Real Estate & Construction (Roofing Show +11 per cent), and Advanced Manufacturing (MD&M West +8 per cent).
• COVID-19 Action Plan has been extended further through an enhanced range of Financing Control Measures, including temporary Dividend suspension & US PP alignment. The group has also introduced Cost Management Measures to provide Stability & Strength to the other side of the COVID-19 pandemic, and annualised direct/indirect cost savings increased to £130 million.

Share Price Performance

Daily Chart as of April 16th, 2020, before the market close (Source: Thomson Reuters)

INF’s shares, at the time of writing before the market close (at 9:35 AM GMT) on 16th April 2020, were trading at GBX 418.60. Stock's 52 weeks High is GBX 900.80 and Low is GBX 326.70.

Future View Impacted by the COVID-19 Pandemic

The company has given six consecutive years of growth in revenues, profits, earnings, cash flow and dividends. COVID-19 Action Plan is assisting in preserving strength and building stability in the first half of disruption in 2020. It is also strengthening the Informa’s balance sheet, reducing overall debt and lowering leverage. The Operating Case assumes a phased and gradual return for the Events brands and the Vigilant Case assumes a more prolonged return for the Events brands. Through long-term attraction and value of industrial trade shows, the company will be enhanced by digital capabilities and world-class biosecurity.

Disclaimer

The website has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. The above article is NOT a solicitation or recommendation to buy, sell or hold the stock of the company (or companies) under discussion. Kalkine does not in any way endorse or recommend individuals, products or services that may be discussed on this site.