AUS
NZ
UK
CA
USA
IND
The impact of mystery virus, now named as 2019 Novel Coronavirus (2019-nCov), has taken over the whole world, causing panic amongst human population and disruptions in supply chains, international travel, and overall performance of businesses and equity markets. There is no anticipation around when and how this situation would be resolved and companies remain uncertain about the future of their operations, whilst there still is a belief that macroeconomic environment will stabilise in the upcoming months.
At this backdrop, let’s look at how these three companies from consumer discretionary and industrial sectors are dealing with the challenge, as they suspended their full-year FY20 guidance.
Flight Centre Travel Group Limited (ASX: FLT)
Flight Centre Travel Group Limited is an Australia-based retail travel agency, with a network of around 1,200 outlets across Australia and throughout the world in Hong Kong, South Africa, New Zealand, Canada and the UK. The Company operates via agencies and brands including Travel Associates, Flight Centre and Student Flights.
Suspension of Guidance for FY20: Flight Centre Travel Group announced to the market that it has dismissed its guidance for fiscal year 2020 (FY20) amidst high uncertainty around the coronavirus havoc.
Subsequently, the Group added that it anticipates a significant impact of the virus outbreak on its FY20 second half earnings (2H FY20) and the Board has decided to lower the full-year guidance to an underlying profit before tax (PBT) of $ 240 million - $ 300 million from the previous guidance ($ 310 million - $ 350 million) released on 27 February 2020. Although, the total transaction value (TTV) trends generally in line with expectations in early second half trading but spread of virus and increased restrictions around travel mean demand is softening significantly and timeframe for recovery is not yet clear to anyone.
The Group also outlined and gave details about some of its investment priorities and its key combative cost-related initiatives through to the end of FY20, as the virus spread continues to hamper leisure and corporate travel patterns worldwide. Flight Centre Travel Group also has a strategic response plan in place, with the primary objective being protection and expansion of market-share ahead of future rebound, while controlling costs.
For example, the Company plans to close up to 100 under-performing leisure shops in Australia and looking to transfer TTV and sales staff to other shops, while also continuing to invest in new and emerging models.
The Company has a solid balance sheet, with $ 1.3 billion in total cash and investments as well as $ 189 million positive net debt position as at 29 February 2020.
Stock Information: The market capitalisation of Flight Centre Travel Group stood at around $ 1.94 billion, and it has ~ 101.14 million shares outstanding. On 16 March 2020 (AEDT 01:33 PM), the FLT stock was trading at $ 16.550, dipping 13.577% by $ 2.600 with ~ 1.15 million shares traded.
Corporate Travel Management Limited (ASX: CTD)
Corporate Travel Management Limited operates corporate travel management services and, on a fee for service model, providing business travel advice and services, bookings, ticketing, and ancillary services, in addition to offering travel data diagnostics and recommendations.
FY20 Earnings Guidance Suspended: On 13 March 2020, Corporate Travel Management also announced suspension of its guidance for FY20 due to increased uncertainty caused by the Covid-19 outbreak severity.
Initially on 19 February 2020, CTM had provided a revised FY20 guidance considering several assumptions around the severity and duration of Covid-19 and CTM’s experience with past events and their impact on the corporate travel market. However, the assessment was based on information available at that time of providing the revised guidance including the unknown impact from actions of governments to effectively close borders and suspend travel to and from China.
The Company emphasised that the impact of Covid-19 currently being felt is more severe than CTM’s previous assumptions, primarily due to two factors:
- Further actions from governments to effectively close numerous borders and suspend travel to and from countries and regions, including further travel restrictions announced yesterday from mainland Europe (excluding the UK) to the US.
- Decisions by corporates to ban or limit travel with the flow-on erosion in client activity across all regions.
There is rising uncertainty and any forecasts may not be reliable.
Thus, Corporate Travel Management highlighted some of the factors around its underlying business and its mitigation of the Covid-19 impacts:
- The travel restrictions have led to a material decline in the Company’s client’s travel activity and the timeframe for a return to normal levels of activity is unknown.
- CTM continues to retain clients at a consistent high level and, since the performance update for the first half of the financial year (FY20), the Company is also expanding its client base with new additions. Most pleasing is the continued success in additional new client wins in North America.
- Most importantly, CTM has a high percentage of domestic transactions including - ANZ: approximately 65% of total transaction value (TTV); US: approximately 70% of TTV; Europe: approximately 70% of TTV is travel within the UK. However, in Asia, TTV is predominantly international in nature.
Moreover, the Company is executing plans to manage costs against the reduced corporate travel activity, including staff leave, shorter working weeks on proportionate pay and leave without pay, which apply across the executive team and its entire employee base.
The Group has entered this period with positive net cash and a committed debt facility that is not due to expire until August 2022. An interim dividend of 18 cents per share would also be paid on 14 April 2020.
Stock Information: Corporate Travel Management has a market capitalisation of around $ 1.01 billion and ~ 109 million shares outstanding. On 16 March 2020 (AEDT 01:35 PM), the CTD stock was trading lower at $ 7.710, edging down 16.649% by $ 1.540 with ~ 1.13 million shares traded.
Virgin Australia Holdings Limited (ASX: VAH)
Full-service airline, Virgin Australia Holdings Limited is a domestic and international operations company.
Update on Covid-19 Response: On 13 March 2020, Virgin Australia Group announced reductions in capacity and cost measures to address the impact of COVID-19 outbreak resulting in ripple effects across different sectors with supply chains disrupted and travel industry affected. The Company recognises that there has been a major slowdown in the global travel industry due to a smaller number of forward bookings, as consumers remain uncertain and fearful of international travel.
Virgin Australia Group does benefit from insulation against some of the broader international impacts, as it is predominately a domestic airline, which accounts for nearly 88% of passengers as well as 78% of the Group’s flight revenue. In the wake of current circumstances, the Group is lowering capacity in its presently operated international markets, in addition to domestic capacity. The actions are in line with demand that has reduced in some markets.
The Group continues to maintain its high standards for providing health and safety to its crew and guests and has adopted additional hygiene measures as additional precautions, implemented in the air and on the ground.
The Group has a strong cash position of over $ 1 billion. Moreover, it doesn’t have delivery of new aircraft until July 2021 and significant debt maturities until the month of October 2021. Consequently, the Group has suspended earnings guidance for the current financial year (FY200.
Stock Information: Virgin Australia has a market capitalisation of ~ $ 667.17 million with ~ 8.45 billion shares outstanding. On 16 March 2020 (AEDT 01:42 PM), the VAH stock was trading at $ 0.074, down 6.329% by $ 0.005 with ~ 3.29 million shares traded.
GOOD READ: The Corona-Contagion Spread and the trillion Dollar wipe off from Global Stock Markets
