01-July-2020:  FLT TO TAKE UP ADDITIONAL FUNDING

FLIGHT CENTRE TRAVEL GROUP TO TAKE UP ADDITIONAL FUNDING TO OFFSET SHORT-TERM CORONAVIRUS DISRUPTION

Flight Centre Travel Group (FLT) has secured access to a debt facility of up to GBP65million, which will be drawn as and when required to help offset the coronavirus’s impacts on its United Kingdom business. As announced previously, the funding has been made available to FLT via the Bank of England’s Covid Corporate Financing Facility, a program that has been implemented to support short-term liquidity among firms as they work to overcome disruption caused by the virus and the restrictions that are in place to slow its spread. The initial notes issued under the facility will mature in March 2021 and should be capable of being extended for a further 12 months through the issue of further notes under the facility.

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--- seems like a sensible move to me --- 

I think FLT looks like a good solid longer term opportunity, but I'm not currently a holder, because I see better opportunities elsewhere.  Also, things could get worse for FLT in the near-term, and they might get cheaper.  But you never know.  I'm personally avoiding the sector currently, but I can understand the appeal.

06-Apr-2020:  Operational Update and Equity Raising

Equity Capital Raising and Request for Extension of Suspension

EQUITY CAPITAL RAISING TO STRENGTHEN BALANCE SHEET PLUS ENHANCED LIQUIDITY  

The Flight Centre Travel Group (Flight Centre or FLT) is pleased to announce a comprehensive package of initiatives designed to strengthen its balance sheet and liquidity position in the context of prevailing market uncertainties and position it for future growth.

The initiatives announced today complement the previously announced cost reduction and cash preservation initiatives implemented by FLT to help overcome the unprecedented travel and trading restrictions imposed by governments in response to the COVID-19 pandemic. 

The initiatives announced today include: 

• A ~$700 million fully underwritten(1) equity capital raising, comprising a ~$282 million institutional placement (Placement) and a ~$419 million 1-for-1.74 accelerated pro rata non-renounceable entitlement offer (Entitlement Offer) (together, the Equity Raising);
• A $200 million increase in commitments from existing lenders; and
• Confirmation that the previously announced cost control initiatives and cash preservation initiatives are anticipated to reduce annualised operating expenses by approximately $1.9 billion(2) (to approximately $65 million per month, by the end of July 2020). 

(1) Excluding the founder commitments under the institutional component of the Entitlement Offer and the circumstances described on slide 45 of FLT’s investor presentation released to ASX on 6 April 2020 (Investor Presentation) under the heading “Shortfall”. Refer to paragraph 2.2 of the Key Risks in the Investor Presentation for a description of the terms and conditions of the underwriting arrangements. Assumes that an additional 229,466 FLT shares are issued prior to the record date for the Entitlement Offer pursuant to the exercise of awards that have vested under FLT’s Long Term Retention Plan, noting that the actual number of FLT shares that are issued may be less than this number depending on whether the participants exercise their vested awards in time. These amounts are subject to rounding.

(2) Compared to operating cost base between July 2019 and February 2020 of approximately $227 million per month.

--- click on links above for more ---

The Offer will be conducted at $7.20 per New Share (Offer Price), representing a 27.3% discount to the last traded price of $9.91 on 19 March 2020.

26-Mar-2020:  Flight Centre Details Coronavirus Response Plan

Key points:

• Three-pronged plan in place to tackle prolonged coronavirus-driven travel downturn 
• Costs, cash & liquidity focuses – without jeopardising future growth prospects & while maintaining company culture
• Pre-coronavirus staffing levels now unsustainable – significant reductions needed to better reflect prevailing trading climate & preserve jobs for the long-term
• About 6,000 support & sales roles to be lost globally either temporarily or permanently & including 3,800 people in Australia (temporarily stood-down)
• Intention is to return stood-down people to workforce when restrictions are lifted & demand increases. Short-term opportunities available for impacted employees – access to up to 10,000 roles in Australia
• Strong customer focus to be retained – in low demand environment, work-force helping travellers adjust plans or fly home ahead of enforced border closures

[Click on link above for further details]

I note that they are not yet ready to lift the trading suspension, and the reason is:  

LIQUIDITY

"FLT is undertaking steps to ensure it retains a robust balance sheet and liquidity position to enable it to manage through the current crisis. The company is well progressed in pursuing relevant initiatives and will update the market in due course, at which time it also expects to end the voluntary Australian Securities Exchange suspension that is currently in place."

As I have said over the past week, debt levels are the major issue.  FLT has done well throughout their history, and in most years without any net debt (and often with substantial net cash), and that's one of the things that has attracted me to them in prior years as an investment (and I have been a happy FLT shareholder at various times, but not this year) but they currently do have debt, and it's not a good time to have debt, when you don't have the revenue to service that debt.

The silver lining is that I think they are big enough and high-profile enough (with their bricks-and-mortar stores) to either navigate their way through this or be saved by the Australian Government as part of their stimulus measures - some of that stimulus would naturally be targeted at those industries hardest hit by this pandemic. 

I am more concerned about WebJet (WEB) to be honest.  I'm not sure that companies that are purely online with only a small fraction of the employees that a company like FLT has is going to be viewed in the same light by the Government.  In other words, the fallout - as far as the Government is concerned - of an online company like WEB failing - is not nearly as problematic to them as the failure of a big employer like FLT.  I could be wrong of course, but that's how I'm seeing it.

23-Mar-2020:  The FLT trading halt has turned into a trading suspension, at the company's request, ahead of a further market announcement (not made yet as I type this, and unlikely to be made today).

The suspension, which follows a two-day trading halt, will allow FLT to:

• Develop its comprehensive response to the unprecedented travel and trading restrictions that governments are implementing to slow the coronavirus’s spread. These restrictions have increased, with Prime Minister Scott Morrison yesterday advising against non-essential domestic travel in Australia in the near-term and some shops being forced to close temporarily in some locations;
• Continue the positive discussions it has been having with key stakeholders on ways to manage the financial impacts flowing from these restrictions and forced closures; and
• Liaise further with governments to discuss support packages for businesses and people who are adversely affected.

FLT’s response will outline new and more comprehensive cost reduction and cash preservation plans to help combat the virus’s impact in the short to medium-term.

Today, the company has also:

• Cancelled its 2020 fiscal year interim dividend. The 40-cents-per-share dividend was declared on February 27 and a total of $40.1million was to have been paid to shareholders in April 2020; and
• Implemented a 50% pay-cut for FLT’s senior leaders (Task Force) 

“Cancelling the dividend was not a decision that was taken lightly, but we felt it was appropriate to preserve cash and protect long-term shareholder value, given the current uncertainty and the unprecedented actions that governments have been forced to adopt to slow the coronavirus’s spread,” FLT managing director Graham Turner said. 

ENDS:  Media & investor enquiries to haydn_long@flightcentre.com, + 61 418 750454 

The above info and wording was taken directly from their ASX announcement today.

Meanwhile, WEB has also turned their trading halt into a trading suspension, saying, "Webjet has not concluded the terms of the proposed raising."

The word is that they were not able to garner any interest at any price, according to Marcus Padley's daily newsletter. 

If you had to bet on which one of them is more likely to fail (go broke) first, it would have to be WEB.  FLT are much bigger, they have more options available to them, like cutting their dividend (which they've just done), which immediately saves them $40 million, and are more likely to receive beneficial Australian Federal Government assistance than a purely online company like WEB is likely to receive, in my opinion.  However, even if you could buy shares in either of them, and you can't while they're both suspended, I'd be holding off for a while yet.  It's still too early.  Things will likely get a lot worse for both companies for a while yet.  And they both still have debt, and FLT have significant overheads (ongoing costs) with almost zero income to offset those costs.  In WEB's case, their costs are going to be significantly lower, but they still need to service their own debt as well as stay within the lending covenants that they have agreed to.  If they breach those covenants, their lenders can call in the money owed immediately.  WEB's only way to pay that debt would then become either a capital raising (and they're struggling to get one of those off the ground currently) or asset sales.  Asset sales are also a problem when it's hard to see who would currently want to buy the assets that WEB own - which are travel and accomodation websites.  It is fair to say that if they could find an interested buyer, they won't get what they paid for those assets (the ones they have acquired that is, not the ones they have built up organically from scratch).  Unfortunately it's going to be a rather turbulent ride for anybody who already owns shares in either WEB or FLT.

20-March-2020:  https://www.livewiremarkets.com/wires/defence-defence-defence

Excerpt:  MATTHEW HAUPT, Lead portfolio manager of WAM Leaders Fund (ASX: WLE)  - He thinks FLT is going to be a GREAT opportunity, but not YET!

Talking all things large caps, Matthew Haupt is shying away from the mining sector. At present, the global economy is pricing mining at a recession which has a vastly negative effect on the sector. All elements of mining should be avoided, with the exception of iron ore. Matthew says that China’s steel production will not be severely impacted by the virus, and the demand for iron ore will be similar to previous years.

Unlike mining, Matthew says banks are looking okay. Priced at a recession, banks will improve, particularly with the assistance of rate cuts.

How have you adjusted the portfolio during the outbreak of COVID-19?

Just as all portfolio managers at Wilson Asset Management, the outbreak of COVID-19 has caused Matthew to make some significant changes to the portfolio.

Similarly, he has increased the cash of his portfolio. The portfolio has also increased their defensive style holdings.

Matthew has structured the portfolio on a recession style period that will last for at least nine months.

What is one stock you like at the moment?

Controversially, a stock liked by Matthew at the moment is Flight Centre. This comes after Flight Centre announced the closing of 100 stores across Australia within the next 12 months. The stock fell 33.04% on Thursday alone and has been hit hard by the outbreak of the virus and the consequential travel bans.

Haupt says this is a good sign though. When travel bans are lifted, people will be desperate to travel, creating opportunities for Flight Centre.

“That one has got the most upside potential”

He recommends waiting for a while though. They have a long way to go until they can be considered a stock worth buying, but they will eventually benefit from the easing of government restrictions. 

The bear has definitely begun to hibernate, and as noted by Geoff Wilson, the market hates uncertainty. Volatility will continue to consume global markets for the next period, but it may create a great buying opportunity.

You can listen to Wilson Asset Management’s 2020 Investor conference call here. 

[Click on link above for more]

19-Mar-20:  As I mentioned in my bear case straw concerning FLT yesterday, they are directly in the firing line of this crisis, and an obvious short.  Today, WEB called for a trading halt before the market opened, apparently to finalise a capital raising and announce the details to the market (which they haven't done yet, as I type this), so they're still suspended from trading. 

FLT fell 33% today to $9.91, then called for their own trading halt, which stopped the free-fall.  In FLT's case, their trading halt was requested under Listing Rule 17.1, pending the release of an announcement regarding the Company’s response to the impact the Coronavirus is currently having on its business. They've requested that the trading halt stay in place until the earlier of the release of an announcement by the Company or two trading days, which takes them up to Monday.  They might be best off taking their time with their announcement, because returning to trading early is unlikely to do them any favours.  The longer they're suspended from trading, the more chance that some of the panic dies down and people start to think beyond this crisis.

At under $10, FLT screens as great value, IF they survive.  I doubt whether they will go under, but it depends on how long this lasts and how much money they lose during that time.  We'll probably get a clearer picture of that when they make their announcement (the one that allows them to resume trading again).  What I was pointing out yesterday was that even though FLT had fallen a long way, they could certainly fall a lot further before they bottomed, and today they fell another 33%.  It's OK to buy with a longer term view, in fact I do it all the time, but only when I have confidence that the company doesn't have debt that could ultimately bring it undone.  Unfortunately, FLT had substantial debt when they last reported, so if they lose money for long enough, they also may need to do a capital raising, as WEB is doing.  Of course, WEB might be doing the capital raising to buy something, I don't really know, but a capital raising when they've already dropped over 70% is not great news for their shareholders.  I still feel that companies like WEB and FLT are too risky for me at this point.  So is QAN, even though QANTAS is too big to fail and will be propped up by our Federal Government.  I'm not sure they will extend that help down the foodchain to companies like FLT and WEB, or that if they do, that the assistance will be enough.  Good luck to all holders (GLTAH), but WEB & FLT are still in the "stay away" zone for me at this point.

18-Mar-2020:  Firstly, FLT now have significant debt - an ND/E ratio of 39% according to shareanalysis.com when I checked recently (H1FY20 numbers).  Secondly, they are cum-downgrade.  They've already withdrawn guidance - as everyone else is also doing, and that's very prudent in this environment, but clearly airlines and travel agents are going to be hit much harder than most.  So "downgrade" might be the wrong word when they no longer have any guidance to downgrade, but when the dust settles and the numbers are tallied, it ain't going to be pretty.

Unlike WEB (Webjet) who are purely online, FLT have a dual strategy (online + significant bricks-and-mortar stores all over the world) and their shops are often in large shopping centres with very high rents/lease obligations.  They are going further into debt I think, because of what's happening now - because they have unavoidable overheads (costs) that the online players (the players who only have a web presence and no physical stores) just don't have.  Flight Centre could shut their stores and send their staff home, but they still have to pay their leases and all of their other costs, and probably still have to pay most of their staff, whether they are working or not.  A company like WEB can rely far more on computers and have a LOT less staff, and therefore a lot less overheads.  WEB will be hit hard, but FLT are likely to be hit a LOT harder.

Also, companies like FLT are at the coalface of this, from the stock market's point of view, so they are an obvious short.  I reckon you have to be very brave to be buying them here.

I'll put two links below that I've been using to follow the spread of COVID-19:

Coronavirus COVID-19 Global Cases by the Center for Systems Science and Engineering (CSSE) at Johns Hopkins University

World Health Organisation (WHO) Novel Coronavirus (COVID-19) Situation Dashboard

That 2nd one has a tracker on the left side that shows daily reported cases, and they're very rapidly increasing from that low point on Feb 24.  Remember also that many (possibly most) cases go unreported.  In the USA, healthy young adults are being refused testing and told to go home and self-isolate if they believe they have symptoms.  The official line is that the tests are being saved for the elderly who are more at risk of dying from the virus.  It also keeps their numbers a lot lower than they should be.  Remember that Trump didn't want that cruise ship to berth and allow the people to disembark because he said that would cause "his" numbers to increase (they would become US statistics).  It would appear that he is more concerned with numbers than with people and the risks they face.  In Iran, they are under-reporting for sure, and satelite images show them digging mass graves outside of large cities, which would not be needed if their reported numbers were anywhere near accurate.  Also, many healthy younger people get this virus and get over it without ever being tested, so they're never recorded as having had it.  The actual mortality rates could be 2%, 1% or even lower, rather than the near 4% that the stats suggest.

The containment efforts vary from country to country, with some countries doing a superb job (like Singapore in particular, and China also really when you think about how bad it might have got there) and other countries at the opposite end of the spectrum doing next to nothing, other than burying their dead.  Don't get me wrong.  I'm close enough to fully invested at this point.  I'm not selling up and running for the hills.  I think that containment efforts are likely to give scientists more time to study this virus and develop better treatment options, and hopefully a vaccine.

However, remember that there are viruses out there that we have never managed to develop a vaccine for - after decades of trying - like Hepatitis C and HIV-AIDS.  We have improved treatments for people who contract those viruses, and we have improved mortality rates (less people die due to contracting those viruses) but we have yet to find a cure.

There is also a chance that this virus might mutate into a less virulent strain and possibly even die out, like SARS did.  People don't get SARS any more.

There are many possibilities.

However, what seems clear is that this is a medical health crisis first and foremost, not a financial crisis, and financial/fiscal stimulus measures can only mitigate the economic impact of the crisis, not cure it.  This is going to get worse before it gets better.

However, I'm sure it gets better.  I don't know how long that will take, or how many will die before it happens, but at some point it gets better.  It's not going to be the thing that wipes out the human race, not with those mortality numbers.

However, at this point, I would be buying stocks that have been irrationally sold off, perhaps due to fund redemptions, rather than companies that are clearly going to be most affected by this, when we don't know how bad it WILL get, before it gets better.

02-Apr-19:  I'm just copying this from a forum comment I just made in answer to Strawman's question - "What's the bull case guys?"  So here 'tis:

My bull case is:
(1) Management is good.  I have a lot of respect for Graham "Screw" Turner and the way he runs this company, and what he has achieved.
(2) Balance Sheet is very solid, with no net debt, and their ROE is around 18%, so they're profitable enough.
(3) They pay good dividends, especially the last one.  And their balance sheet and ROE can support a high dividend.
(4) They consistently manage to not only survive (when most people have declared them dead and buried, or at least heading that way) but continue to grow.
(5) In direct contrast to PGJM's "Risks" straw where they claim that FLT, WEB & CTD are all highly valued - by the market I assume - meaning that their share price is high, I contend that the share price of FLT is NOT high.  I believe the market is UNDERvaluing Flight Centre.  More about this point below:

• DB - Deutsche Bank's latest call on FLT is "Hold" with a $46 price target (PT) (updated on 19-Mar-19)
• MS - Morgan Stanley's latest call on FLT is "Overweight" with a PT of $51 (22-Feb-19)
• OM - Ord Minnett's latest call on FLT is "Buy" with a $55.47 PT (22-Feb-19)
• Morgans' latest call on FLT is "Hold" with a $47.37 PT (22-Feb-19)
• Macquarie, Citi & Credit Suisse all have "Neutral" calls on FLT according to FNArena.com - and PTs of $43.50, $47.50 and $43.40 respectively
• UBS have a "Buy" call on FLT with a $61.20 PT.
• Commsec say that of the 5 brokers that they've polled, 3 have "Strong Buy" calls and 2  have "Hold" calls - and those 5 include Bell Potter, Credit Suisse (US), and Morningstar Australia.
• Shareanalysis.com (formerly Skaffold.com) which has a valuation method based on Roger Montgomery's method (as explained in his book, "Value.able"), says that FLT is worth $55.10 now (in 2019), rising to $60.40 next year, and up to $66.70 in 2021.  I find their valuations to be pretty conservative.  They value Corporate Travel (CTD) at $13.65 this year, $15.45 next year & $17.43 in 2021, and CTD closed at $25.71 today (02-Apr-19).  (See what I mean?)

FLT closed at $42.67 today.   Nobody appears to have a "sell" or even an "Underweight" on FLT, and everybody has a price target that is higher than the current share price.  Many are substantially higher than the current share price.

And Flight Centre isn't regarded as a sexy stock/company.  They've got a great website that I used yesterday to book a return flight to Sydney (with a price-drop guarantee, so if my flight gets advertised cheaper between now and when I fly, they'll refund me the difference) but they're still thought of as an old-world bricks-and-mortar store chain of travel agents.  There's a lot more to them than their Australian "Flight Centre" physical stores.  They're a global company and most of their growth is now coming from outside of Australia.  I just think they've been written off prematurely.  Profitable, well run, no net debt, still growing, and undervalued.  That's my bull case Strawman.  What do you think?

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P.S. I like the new "character counter" at the bottom of the window as you type in a straw.  3352 of 5000 characters.  Exactly what I asked for.  :-)  Perfect!