Morgan BellToll Holdings Finds Virgin
November 29th 2006 12:25
If you, dear reader, are a frequent flyer, do you fly Virgin? Toll Holdings has just discovered it after owning it for a while. Do you think Virgin Blue is a worthwhile investment? Stay with me.
The news today, 29 November 2006, is that “six months after inheriting control of Virgin through its takeover of Patrick Corp, Toll said it planned to hold on to its 62.4 per cent share in the airline for the foreseeable future as it “offered further value enhancement”.”
“It’s an excellent business, “Toll’s managing director Paul Little told the Herald.”"
“”It’s a good model. And it’s on that belief further valued can be added.””
“Mr Little said Virgin’s introductions of a frequent flyer program, inflight television, additional airport lounges and a fuel hedging program (to lower exposure to fluctuating fuel prices) were “all having a positive impact on the business”. He said Toll’s plans to possibly include Virgin Blue in its airfreight strategy would help add value.”
“The Toll chief said the possibility of Virgin entering the Qantas-dominated and highly lucrative Australia-Los Angeles route, along with its planned introduction of Embraer jets into its fleet, offered “some exciting prospects”.”
This news was published by the online version of the Sydney Morning Herald under the title “Toll now sees value in Virgin” and was written by Scott Rochfort. Click here to open that page: smh.com.au.
Virgin Blue Holdings (ASX: VBA) follows a formula of low cost and low fare air transportation that, since 1999, when it was established, has proven successful. It flies to 22 Australian cities and 8 international ones. Virgin includes Pacific Blue brand and Polynesian Blue brand. Also, it offers holiday packages under the Blue holiday flag.
VBA has a current price of $2.10 and Net Profit After Tax of $84.5 million on a margin of 6.1 per cent. Its Return on Equity is 13.9 per cent, which is not much above the norm, and its share trades at multiples of 19, which probably indicates overpricing.
Virgin’s debt of $697.6 million, or 54 per cent of capital, is just as far as it can go. It would take VBA 8 years to repay its debt from its NPAT at current levels.
Its interest of $36.6 million does not seem to pose a problem.
Finally, its EPS is forecast to grow to 15.2 cents by 2008, which coupled with its current P/E of 19 indicates a price of $2.90, meaning an increase of 17.5 per cent compounded.
If you think that your money in the bank earns something like 6 per cent, it’s not bad.
These figures and calculations are based on data available at http://money.ninemsn.com.au/shares-and-funds/research-a-company/.
But airlines are tricky business. They suffer from all sorts of problems. Just consider 9/11, SARS and now the high fuel prices, to mention only a few, and how they impacted so unexpectedly in their bottom line. Besides this, competition is cut-throat.
But when Chris Corrigan bought a controlling interest of 62.4 per cent of Virgin Blue he must have had something in mind. Did Toll rediscover it now?
End
The news today, 29 November 2006, is that “six months after inheriting control of Virgin through its takeover of Patrick Corp, Toll said it planned to hold on to its 62.4 per cent share in the airline for the foreseeable future as it “offered further value enhancement”.”
“It’s an excellent business, “Toll’s managing director Paul Little told the Herald.”"
“”It’s a good model. And it’s on that belief further valued can be added.””
“Mr Little said Virgin’s introductions of a frequent flyer program, inflight television, additional airport lounges and a fuel hedging program (to lower exposure to fluctuating fuel prices) were “all having a positive impact on the business”. He said Toll’s plans to possibly include Virgin Blue in its airfreight strategy would help add value.”
“The Toll chief said the possibility of Virgin entering the Qantas-dominated and highly lucrative Australia-Los Angeles route, along with its planned introduction of Embraer jets into its fleet, offered “some exciting prospects”.”
This news was published by the online version of the Sydney Morning Herald under the title “Toll now sees value in Virgin” and was written by Scott Rochfort. Click here to open that page: smh.com.au.
Virgin Blue Holdings (ASX: VBA) follows a formula of low cost and low fare air transportation that, since 1999, when it was established, has proven successful. It flies to 22 Australian cities and 8 international ones. Virgin includes Pacific Blue brand and Polynesian Blue brand. Also, it offers holiday packages under the Blue holiday flag.
VBA has a current price of $2.10 and Net Profit After Tax of $84.5 million on a margin of 6.1 per cent. Its Return on Equity is 13.9 per cent, which is not much above the norm, and its share trades at multiples of 19, which probably indicates overpricing.
Virgin’s debt of $697.6 million, or 54 per cent of capital, is just as far as it can go. It would take VBA 8 years to repay its debt from its NPAT at current levels.
Its interest of $36.6 million does not seem to pose a problem.
Finally, its EPS is forecast to grow to 15.2 cents by 2008, which coupled with its current P/E of 19 indicates a price of $2.90, meaning an increase of 17.5 per cent compounded.
If you think that your money in the bank earns something like 6 per cent, it’s not bad.
These figures and calculations are based on data available at http://money.ninemsn.com.au/shares-and-funds/research-a-company/.
But airlines are tricky business. They suffer from all sorts of problems. Just consider 9/11, SARS and now the high fuel prices, to mention only a few, and how they impacted so unexpectedly in their bottom line. Besides this, competition is cut-throat.
But when Chris Corrigan bought a controlling interest of 62.4 per cent of Virgin Blue he must have had something in mind. Did Toll rediscover it now?
End
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