Doug Goodwille from Kayne Anderson speaks to Drew Meredith from The Inside Network on market thinkers.
While a surging gold price is on hold as the world adjusts to a Trump presidency, all the factors that saw its price rise more than 50 per during his first term in office – trade disputes, fiscal deficits and geopolitical tensions – are almost certainly guaranteed the second time around.
Why Helloworld remains a top recovery stock
Helloworld Travel (ASX:HLO)
After 106 days of lockdown, Sydney is back open, with fully vaccinated residents able to go back to their favourite shopping centre, gym or café. Melbourne should follow suit over the next few weeks provided it hits its vaccine targets. The “recovery trade” we have spoken about is alive and well. Many of the Covid-losers have done really well, while others have stayed stagnant. By far the biggest short-term winners have been travel stocks.
Looking at the table above, travel stocks are leading the Covid-19 losers pack following Prime Minister Scott Morrison’s statement late last week that international borders will open in November. Those that jumped on Flight Centre (ASX: FLT) and Helloworld will have done extremely well, with the pair’s shares up 26 per cent and 35 per cent respectively.
Both FLT and HLO were hit hard by the pandemic, as international borders were closed shut and people forced into lockdown. This year, HLO posted a statutory after-tax loss of $36m for the financial year. It also let go 44 per cent of its workforce and shut 272 agencies, taking the number down to 2224.
In its half-year results, Helloworld said: “the total size of the industry in 2019 was estimated at US$2.9 trillion. In 2020 this shrunk to US$1.5 trillion in 2020 and is forecast to reach US$1.7 trillion in 2021, still a long way short of 2019 levels.”
With very tight cost management across its business divisions, HLO has been able to keep losses to a minimum throughout the period and achieve a normalised EBITDA loss of $14.1m, at the lower end of its guidance, for the 12 months ending 30 June 2021. While at the lower end of guidance, Morgans says the result was better than expected, with Helloworld maintaining strict cost control measures and maintaining liquidity beyond 2022.
There are however a lot of reasons to remain positive:
- Qantas is planning to commence flights between Australia and Fiji, Singapore, the United States, Japan, United Kingdom and Canada from mid-December 2021.
- Pent up demand for domestic and international leisure, and corporate travel is at extraordinary levels
- Vaccination rates over 80%, rapid testing, digital certificates, advanced contact tracing and mutually agreed travel and border protocols will allow domestic borders to re-open later this year and international flights and cruises to recommence by years end.
- Australians & New Zealanders are already permitted to enter a growing list of countries around the world without quarantine including the UK, the EU, Switzerland, Maldives, the UAE, the US, Canada and Singapore.
While Helloworld did not provide 2022 financial year guidance given the uncertainty surrounding international travel and Covid-19, Australia is on track to achieving the 80 per cent vaccination rates by November-December. That means borders will open by latest end of the year.
Morgans has an “add” recommendation with a target price of $3.03. The broker says that upon attaining 80% vaccination rates, management feels international travel will return during 2H22. The broker expects earnings will fully recover in FY24. First-quarter total transaction value (TTV) has fallen again due to A&NZ border restrictions, notes Morgans, with more than enough liquidity to maintain operations well into 2023.
