ASX200 Flight Centre Travel Group Zooming on ASX over Shifting Business Plans

Summary

  • S&P/ASX 200 Flight Centre Travel Group Limited (ASX:FLT) is showing a good recovery on the exchange with the stock rallying ~ 105.86 per cent from the recent low.
  • The stock has gained some traction on the exchange with a strong six-month return of 37.84 per cent amidst a decent recovery in S&P/ASX 200.
  • The recent shift in market sentiments around the Company seems to be fanned by its liquidity generating ability and measures taken to cut the losses short and reduce the operating cost.
  • Liquidity runway and cost-cutting measures.
  • FLT on Charts.

S&P/ASX 200 Flight Centre Travel Group Limited (ASX:FLT) is showing a good recovery on the exchange after witnessing a period of loss in FY2020. The recent shift in market sentiments around the Company seems to be fanned by its liquidity generating ability and measures taken to cut the losses short and reduce the operating cost.

After cracking from the top of $44.24 (intraday high on 11 September 2020) to the recent low of $8.69 (intraday low on 23 April 2020), the stock is now showing momentum with prices recovering from $8.69 to $17.89 (intraday high on 9 June 2020) and entering a consolidation thereafter.

The stock has captured some eyes with a strong six-month return of 37.84 per cent with the recovery in the underlying S&P/ASX 200 index.

Also Read: Airlines Under Sentiment Splash, Stocks Double from Recent lows- QAN, WEB, and FLT

Liquidity Runway and Cost-Cutting Measures

In a recent announcement to shareholders, the FCTG suggested that it has developed a longer liquidity runway to overcome the business challenges posed by COVID-19.

  • The Company secured access to nearly $200 million in additional funds during July 2020 along with over $1 billion secured since April 2020 to weather the prolonged downturn in the industry.
  • Apart from that, FCTG recorded a net operating cash outflow of $53 million in July, which remained below its target of $65 million, which the Company further reduced to $43 million post paying a net benefit of $10 million per month, flowing from the JobKeeper (JK) wage subsidy for retained employees in Australia.
  • In April, FCTG raised $900 million via a fully underwritten $700 million capital raising and a $200 million debt facility increase.
  • The Company sold its Melbourne head office, secured a government-backed United Kingdom loan, maintained its eligibility for the JobKeeper (JK) wage subsidy, which has further added another $200 million to the liquidity runway.

Moreover, apart from just generating a liquidity runway for long-term, the Company planned to reduce its cash outflow as well through a major cost reduction program.

  • In April 2020, the Company planned to slash $1.9 billion from its annual cost base by lowering occupancy costs through rent reductions, shop rationalisation, and reduction in the global workforce.
  • Furthermore, in the light of such steps, FLT now anticipates incurring up to $210 million in one-off expense along with an additional $155 million in transitional costs.
  • As on 30 June 2020, the Company held ~ $1.9 billion in cash and liquidity of $1.5 billion, post adjusting for net working capital, client creditors, $200million in additional cash, and the pending funds.

The Company now intends to increase its liquidity runway by increasing the revenue as the travel restrictions are lifted, and by targeting the operational cost.

The recent business plans and increased liquidity seems to be uplifting the market sentiments around the stock with FLT now gaining bullish splash on ASX.

Market Behaviour and Price Action

FLT on Charts

FLT Daily Chart (Source: Refinitiv Eikon Thomson Reuters)

On following the daily chart, it could be seen that the stock spiked in the recent past before entering a phase of consolidation; however, despite consolidation in place, the stock is showing an upward sloping channel, suggesting that bullish sentiments are currently prevailing in the market.

  • The stock recently breached its horizontal resistance level of $12.016, which could now act as the price support.
  • At present, the pair of directional signals, i.e., plus DI and minus DI is showing a positive signal with the plus DI trading above the minus DI.
  • During the past few trading sessions, the plus DI touched the extreme of minus DI amid a day of a large sell-off amidst the price recovery; however, the price behaviour of the stock prevented any negative cross between the signals, suggesting that bulls are currently dominating the front.
  • The future resistance level can now be projected by connecting the recent low to the recent high with a Fibonacci fan with the 1/3 fraction being the primary resistance.

FLT Daily Chart (Source: Refinitiv Eikon Thomson Reuters)

On further following the recent price action closely, it could be seen that the stock attempted a volatility breakout; however, failed to sustain the same, and is currently testing the short-term support zone.

  • The upward-sloping short-term trendlines should act as immediate support for the stock, followed by decisive support around -2 Standard Deviation of the 20-day simple Bollinger band, which is currently overlapping with the 50-day exponential moving average.
  • The immediate resistance for the stock is the +2 Standard Deviation of the Bollinger, followed by the 1/3 fraction of the Fibonacci fan, and ultimately the 200-day exponential moving average.
  • Both, the On Balance Volume and 14-day Relative Strength Index (or RSI) are moving in tandem with the price action with OBV slightly sloping upside and 14-day RSI moving above the mean value.

FLT Daily Chart (Source: Refinitiv Eikon Thomson Reuters)

On applying the Ichimoku Kinko Hyo on the daily chart, it could be seen that the stock is currently trading above Span A, which itself is trading above Span B, suggesting that the market currently stands bullish on the stock.

  • Also, the conversion line and the base line are showing a positive cross that too above Span A, reflecting that bullish sentiments are in the strong form.
  • The major support for the stock is around the grey cloud area.
  • Furthermore, the 12,24,9 MACD indicator is also showing a positive reading; however, the spread between the signal line and the base line is quite narrow, which might be an early sign of slowing momentum.

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