Afterpay and ZIP rally 20% before Thursday’s earnings – Does YIG see value?

Afterpay (ASX: APT) and Zip Co (ASX: Z1P) are putting on an impressive show before Thursday’s earnings with APT, and Z1P eyeing $100, and $10 respectively. The BNPL rockets seem to be poised for blast off come Thursday as institutions, main street, and analysts remain bullish. However, as the BNPL hill climbs higher, could a post-earnings cliff edge see thousands of bulls in free fall? Only time will tell. However, objectively breaking down the analysts ratings, the industry’s long-term future, and the current climate should give us a clearer picture?

Table of contents 
1. Institutions lead the Afterpay and ZIP earnings rally 
2. Are investors betting on more than just hype? 
3. Does YIG see value in an investment?

Analysts upgrade Afterpay and ZIP ahead of earnings

Institutions and their analysts were hesitant to give Afterpay and Zip the stamp of bullish approval in March. However, the enormous rally and international expansion of the BNPL giants, particularly APT, saw many analysts push the bullish narrative.

Morgan Stanley, Wilson, and Bell Potter all raised their price targets on Afterpay today above the current market price. For example, Morgan Stanley’s new price target is $106, while Bell Potter’s is $96.70. Consequently, the above market ratings continues to make Afterpay incredibly bullish.

However, it is also the analysts commentary that is driving the optimism. For example, Wilson’s analyst Cameron Halkett stated:

We previously held reservations around Afterpay’s ability to ward off strong global competitors and endure the systematic upheaval of COVID-19 on end-customer repayment ability. To date, these concerns have yet to materialise, and rather than focusing on what could go wrong, we take a fresh view of what has, and what could continue to go right.

Is there more to the BNPL hype than earnings speculation?

The past month attracted the earnings investors, but the question still remains: is ZIP and APT still hype or is there value in an investment? Afterpay and Zip’s core offering of innovative payment solutions holds tremendous value for a digital society. Especially in times of crises, when financial strife runs rampant for businesses and individuals. While investors and legal bodies raise the red flag of unethical purchasing habits for young people we should see legislative action curb the potential for mass-individual BNPL bankruptcy.

Furthermore, as Afterpay inches closer to the ASX/S&P 20, more investors view APT as a safe haven blue chip. However, investors’ buying reaction after a market correction will truly reveal whether APT and Z1P hold value. Increased buying after a sell-off would indicate investors snapping up discounted shares of a quality stock. Conversely, a severe bearish decline, similar to Nikola Motors, would indicate investors were just in it for the momentum.

Does YIG see value in an Afterpay/ZIP earnings investment ?

Before I begin I am obliged to remind our viewers that this is not advice but rather investment commentary from extensive research

Short answer: A short-term investment holds the most potential (opinion not advice) 

Short-term investments in Afterpay and Zip carry a significant amount of volatility. Allowing retail investors to capture massive upswings in the BNPL giants. The buying spree following Q3 2020 earnings was a perfect example. It seems another investing party for the APT and Z1P bulls is increasing in volume as we inch closer to Thursday. Especially, considering the relentless raising of buy ratings from analysts. Ultimately, adding significant weight to investors championing the strategy to invest and ride the earnings momentum.

The dark side of riding the APT wave

However, the issue on a pre-earnings investment is timing your exit. Because when euphoria erupts within, it is difficult to exit the position as you believe your investment is going to the moon. Most investors understand and tell themselves they will exit the position moments before the sell-off. However, how can you exit something moments before when you do not know when that something will come. Warren Buffet phrases it like this, “all the giddy participants plan to leave the party seconds before midnight. However, they are dancing in a room in which the clocks have no hands.” Overall, riding the ZIP and APT earnings fever with a modest profit target should increase your chance of leaving before midnight.

If you enjoy our article or are wanting to learn more, you can subscribe to us for free via email and get updated when we post a new article. From all of us at YIG, thank you for the support.

The information above is not financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.

Here is our free, uncomplicated, and extensive ASX portfolio

https://youth-investment-group.com/portfolio/

Want access to free, uncomplicated, and smart COVID-19 Strategies then click below?

https://youth-investment-group.com/2020/04/09/how-to-profit-off-smart-investments-during-covid-19/ 

Written by Patrick McLoughlin, Senior Manager of YIG

After rising 50% on Friday is Mesoblast now a good investment ahead of COVID-19 trials?

Mesoblast (ASX: MSB) (NASDAQ: MESO) was on our portfolio since May. However, volume started to climb higher this week as an advisory committee voted in favour of Mesoblasts pediatric drug remestemcel-L (Rynocil). The positive catalyst triggered a Mesoblast buying party on the ASX and the NASDAQ. For now, investors are optimistic about Mesoblast’s medium-long term future. However, the sentiment come Monday is uncertain. Some investors expect the biotech company to keep on rising next week. Whereas the bears forecast a Mesoblast sell-off next week.

Table of contents 
1. Why did Mesoblast soar this week? 
2. Update on the COVID-19 trial timeline. 
3. Is Mesoblast now a good investment?

 

Why is Mesoblast rise 50% on Friday

Mesoblast traded like a rollercoaster this week. The week started bearish as the FDA expressed concerns around the effectiveness of Mesoblasts remestemcel-L in treating acute graft versus host disease (aGvHD). FDA apprehension saw investors sell Mesoblast ahead of its meeting with the Oncologic Drugs Advisory Committee (ODAC). Consequently, Mesoblast fell 37% to $3.06. However, at the $3 range, Mesoblast reached capitulation, meaning all sellers had left the party leaving only buyers to drive up the price.

However, the real buying began when the ODAC unexpectedly voted in favour of Rynocil. The ODAC agreed that Mesoblast’s data indicated remestemcel-L could be an effective treatment for aGvHD. Ultimately driving a 50% rally at the bell on Friday.

However, YIG would like to point out that the recommendations of the ODAC are not binding. The FDA could still turn down Remestemcel-l. Thus, the ODAC’s suggestions must be convincing. Because the FDA will make the final decision on remestemcel-l on the 30th of September, and if they are not convinced, they can still deny Mesoblast despite Friday’s outcome.

Mesoblasts COVID-19 trial update

Mesoblast is no one-trick pony. The biotech has a robust clinical pipeline that covers aGvHD, chronic heart failure, degenerative back disc disease, and more recently, COVID-19. Mesoblast’s COVID-19 treatment is acting like a magnet to the wallets of investors. Especially as Mesoblast reported an 83% survival rate for 12 patients who underwent the COVID-19 treatment. 

Mesoblast is set to release interim analysis of its COVID-19 trial in early September. The report will likely assess the recovery in COVID-19 patients so far and the related side effects, with a judgement deciding whether the trial can continue. Thus, the COVID-19 hype should see investors pile in on the expectation of positive interim results (opinion, not advice).

 

Is Mesoblast a good investment now?

Before I begin,  I am obliged to remind our viewers that this is not advice but rather investment commentary from extensive research 

Short answer: Waiting for new resistance, support levels and then riding the COVID-19 anticipation holds the most weight (opinion not advice)

Mesoblast will become more volatile from here on out. Allowing investors to capture massive upswings in the stock. However, volatility will increase your risk to major sell-offs, and Mesoblast is known for short-term cliff edges.

Despite volatility increasing the underlying sentiment towards Mesoblast should remain bullish. Mainly because of the upcoming catalysts, which, if positive, should elevate Mesoblast to all-time highs.(opinion not advice) Investors will likely view leading up to the COVID-19 trial results, Chronic back pain, and FDA aGvHD decision with optimism. Because humans are wishful thinkers. Thus, riding the anticipation of catalysts, like what some investors did till Friday, holds more weight than trying to day-trade the biotech.

 

If you enjoy our article or are wanting to learn more, you can subscribe to us for free via email and get updated when we post a new article. From all of us at YIG, thank you for the support.

The information above is not financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.

Here is our free, uncomplicated, and extensive ASX portfolio

https://youth-investment-group.com/portfolio/

Want access to free, uncomplicated, and smart COVID-19 Strategies then click below?

https://youth-investment-group.com/2020/04/09/how-to-profit-off-smart-investments-during-covid-19/ 

Written by Patrick McLoughlin, Senior Manager of YIG.

Afterpay hits a new all-time high – could they reach $100?

Afterpay (ASX:APT) stunned the entire market after hitting a new all-time high of $75, resulting in a 725% rise in three months. APT’s recovery from COVID-19 instantly caught the eyes of many investors. However, doubt crept in that Afterpay’s growth mimicked that of a bubble. The entire BNPL is surging like a missile. Making many investors wonder if the bears got it wrong and whether they should jump on the rocket before it truly takes off. In saying that, let us get to the bottom of the Afterpay, and more importantly, BNPL speculation.

Table of contents 
1. Why is Afterpay up? 
2. Is the BNPL industry a safe bet?
3. YIG breakdown of APT

 

Why is APT up 725% in just a few months?

The initial rebound came from the forced recovery from the 23rd of March. Thus, most investors did not bat an eye-lid as APT rose back up to its pre-COVID 19 levels. Investors instantly began to scream a bubble is forming when APT, and the rest of the industry soared past their pre-coronavirus levels. However, it does makes sense that a stay at home economy would catapult Afterpay into financial heaven. Everyone was at home, and the urge to purchase items on credit was at its peak. Not to mention not having to make interest payments makes BNPL an attractive credit source.

Also, more investors are flooding the market now than at any point in human history. Humans gravitate towards the familiar. Hence, when new investors entered the market, investing in the known, relatively cheap, and emerging companies such as Z1P and Afterpay only seemed natural. Overall the tsunami of new investors combined with FOMO, and a growing digital economy is a recipe for BNPL success.

The recent growth of APT reflects their astronomical business growth, recent audited financials, and BNPL fever. Afterpay experienced a 112%, 116%, and 72% increase in sales, customers, and merchants respectively for FY20. Ultimately, signifying strong businesses growth, causing the bulls to rally behind the BNPL giant. Also, the BNPL industry represents the saying a rising tide lifts all boats to a T. When Zip Co, Split it, or Openpay surge Afterpay also seems to rise despite not announcing anything new. For example, today Sezzles announced their strong FY20 financials, which caused APT to rise 11%.

Afterpay and the post-COVID-19 market

The world is well and truly in the information age, and there is no going back. Businesses that have thrived off the digital economy so far, such as Netflix, Amazon, and Afterpay, should continue to rise(opinion not advice). Buy-now-pay-later, whether you love it or hate it, is now embedded in the digital banking industry. Digital banking should experience an upward surge in customers, funding, and partnerships from here on out. Especially, as digital businesses are an integral part of many nations post-COVID/recession recovery plan. Thus, many investors see APT as a smart investment as they expect Afterpay to remain the industry captain of BNPL.

YIG breakdown APT for investors

Before I start, I am obliged to remind our viewers that this is not advice only general commentary from my extensive research in this area. 

Short answer: Investing in Afterpay could potentially pay-off in the short-term. However make sure your investment reflects your financial interests and not just because everyone is investing in APT. (opinion not advice)

Short term Investment

Over the past few months the BNPL industry has revealed two key times for investors to enter. These include riding the momentum of another companies price sensitive event or entering off a pullback after the announcement. First, use the rising tide to your advantage. So far, Sezzles, and Split it payments have posted their FY20 financials. When Zip co, Afterpay, or Openpay post their results BNPL fever will could go out of control (opinion not advice).

Secondly, it seems investing at the open while trying to capture a short-term profit  swings the odds against your favour. At the bell APT experiences high volatility. Thus, it is best to wait for a pullback before cementing your position. However, investors must understand that the COVID-19 fear is still lurking below the surface. Meaning that the bears could come out of the woods again, clawing off any capital gains you might have made.

If you enjoy our article or are wanting to learn more, you can subscribe to us for free via email and get updated when we post a new article. From all of us at YIG, thank you for the support.

The information above is not financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.

Here is our free, uncomplicated, and extensive ASX portfolio

https://youth-investment-group.com/portfolio/

Want access to free, uncomplicated, and smart COVID-19 Strategies then click below?

https://youth-investment-group.com/2020/04/09/how-to-profit-off-smart-investments-during-covid-19/ 

Written by Patrick McLoughlin, Senior Manager of YIG

 

 

 

Will Webjet and Flight Centre make your portfolio jet off?

With restrictions lifting and international travel on the horizon, Australians eager for a holiday will soon be flocking to the nearest travel agent in hopes of planning the next family vacation. Today we will look at two of the ASX’s most traded travel agents Webjet Limited (ASX: WEB) and Flight Centre Travel Group (ASX: FLT). WEB and FLT have been down 77% and 64% in the last year, respectively. Despite COVID-19, FLT and WEB could be a strong investment as travel restrictions ease and demand soars.

 

Webjet Limited (ASX: WEB)

Webjet is a travel agency that operates across Australia and New Zealand targeting both B2C and B2B sectors through several sub-brands. COVID-19 saw the bulls go into hiding. Ultimately, triggering Webjet to fall from its six month high of $10.43 to $2.26.

However, investors sentiment is changing as Webjet’s share price jumped by 35% in May alone. Australia’s low coronavirus infection rate following successful lockdown and social distancing measures partially aided the bullish rally. However, the positive travel forecasts are the main reason why the bulls rallied behind WEB.

Also, Webjet raised $231 million in equity back in April to bolster their sails through the COVID-19 storm. Overall, if positive travel forecasts continue and COVID-19 dissipates (highly unlikely), then we should see the bulls own the chart.

 

Flight Centre Travel Group (ASX: FLT)

Our other contender Flight centre is one of the largest travel agency companies in the world. FLT operates company-owned stores in 23 countries as well as a corporate travel management network that spans 90 countries. FLT witnessed share price growth of 17.7% in the last 7seven days alone. Like Webjet, FLT’s miniature recovery is due to easing restrictions, and the positive market sentiment. The share price of Flight Centre has fallen drastically from a 6 month high of $40.62 to a 6 month low of $8.92.

Comparison of key financials

Are WEB and FLT worth the investment?

Before I start, I am obliged to remind our viewers that this not advice, only general commentary from my extensive research into this area.

Short Answer: Maybe but not right now (opinion not advice)

While economies are slowly opening up, international travel is still months away. Especially with Bali expecting to host international tourists by October, still four  months away. That means these two companies won’t be booking holidays. Thus WEB and FLT will not be  creating sustainable cash flow for the next few months.

Furthermore, with a recession on the horizon and increased unemployment, disposable income is set to fall dramatically. Consequently, fewer people will be travelling abroad. Another reason I believe WEB and FLT may suffer in short to medium term is an increase in domestic tourism. After last summers bushfires and COVID-19, I feel many Australians would instead explore their own backyard rather than venture across the pond.

If you enjoy our article or are wanting to learn more, you can subscribe to us for free via email and get updated when we post a new article. From all of us at YIG, thank you for the support.

The information above is not financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.

Here is our free, uncomplicated, and extensive ASX portfolio

https://youth-investment-group.com/portfolio/

Want access to free, uncomplicated, and smart COVID-19 Strategies then click below?

https://youth-investment-group.com/2020/04/09/how-to-profit-off-smart-investments-during-covid-19/ 

Written by Marlon Ferguson, Associate of YIG.

How you could profit off shopping centres reopening?

To most Australians, shopping centres exist for one reason, to make you poorer. Ever since the introduction of the credit card in 1951 and more recently, Buy Now Pay Later, shopping centres have become a national sport.

However, for the sharp investor, shopping centres can make a great addition to your portfolio. In today’s article, I will be discussing several businesses in the real estate sector that manage, develop, and operate shopping centres around Australia.

Going to the shops

Like most Australians, shopping centres are a part of daily life, from Woolworth’s weekly shop to Christmas shopping in David Jones. Simply put, the shopping centre is a way of life. While online shopping becomes more prevalent in Australia, with 80.8% of Australians purchasing online, only 10% of products purchased in Australia are purchased via e-commerce retailers. Whilst the shopping centre industry may see an increase in competition, it will only benefit us as consumers and investors more as firms create new business strategies to retain a competitive advantage, evident in the increase in dining options, gyms and facilities being introduced in shopping centres to diversify and capture a greater target market.

Shopping will always be a way of life. However, a consequence of COVID-19 is the rapid and almost permanent shift to online shopping.

 

Re-opening of the economy generates opportunities

COIVID hammered shopping centres, and thus SCG, SGP, VCX and SCP suffered a nasty decline. However, stimulus checks, and the fact that people are craving the need to socialise and interact should see supermarkets jam-packed. Thus, extreme shopping activity should see investor confidence behind shopping centre stocks return. Because of when shops re-open rental profit should increase and shopping centre stocks are set to recover from their undervalued positions (opinion not advice).

Who are the key players?

The shopping centre sector is mainly dominated by a few key players including:

Scentre Group (ASX: SCG) operate 42 shopping centres across Australia and New Zealand with a portfolio value of $56 billion. Scentre Group operates its stores under the ‘Westfield’ name and operates shopping centres such as Westfield Hornsby, Westfield Parramatta, and Westfield Chatswood.

Stockland (ASX: SGP) operates 35 retail centres across Australia with a portfolio value of $6.9 billion and focus on smaller local shopping centres. Stockland operates centres in locations such as Forster, Nowra, Cairns and other regional locations. Unlike the other companies mentioned, shopping centres are not Stockland’s main stream of revenue with Stockland also focusing on residential development, commercial real estate development and retirement home development and operations.

Vicinity Centres (ASX: VCX) own or manage 64 retail centres across Australia with a portfolio value of $26.3 billion. Vicinity Centres operate the Chadstone Shopping Centre, the largest mall in Australia and the Southern Hemisphere. VCX also operate all DFO centres, providing a competitive advantage in the factory outlet retail space. VCX operate centres such as Chatswood Chase, Carlingford Court and DFO Homebush.

Shopping Centres Australasia (ASX: SCP) operate 91 retail centres, 85 of which are in Australia with a portfolio value of $3.2 billion.  SCP focus on smaller neighbourhood shopping centres in suburban to regional Australia, often being the only shopping centre in a given location providing SCP with a competitive advantage.

A comparison of financials

Before I start, I am obliged to remind our viewers that this not advice, only general commentary from my extensive research into this area.

 

Is the shopping centre industry worth the investment

Due to COVID-19  all stocks mentioned above are trading at a discount of between 25% – 45%. Making now a potentially good time to jump onboard. (opinion not advice). The companies mentioned above all pay out a healthy dividend far exceeding the REIT industry average of 5.5%.

Due to Australia’s geographic location and lack of e-commerce infrastructure, the ability for firms such as Amazon to impede on the shopping centre sector is a long-term instead of short-term. The diversification of shopping centres to become retail, lifestyle and dining hubs should increase their competitiveness and attract customers in the long term. Also, high real estate prices in Australia, should see shopping centres in urban areas i.e. Chatswood increasing their profits.

Cons:

Despite the fairy tale story, we must discuss the negatives. Here at YIG, we believe every investor should have  a balanced perspective and not lured into speculative stocks.

In light of COVID-19, shopping centres have been hit greatly by tenants failing to pay rents, leading to a decrease in cash flow in the short term. COVID-19 also forced smaller ‘mom and pop’ stores to close their doors for good, increasing the vacancy rate in malls across the country.

Furthermore, increasing unemployment will lead to a decrease in discretionary spending, further impacting stores such as Target which are already closing or rebranding stores.

Lastly, the increase in e-commerce may further erode at shopping centres market share in the long-term.

Conclusion

Despite the rise of e-commerce, the shopping centre still has an important place in Australia for the short-term. Thus, shopping centres appear an attractive investment. (opinion not advice) Shopping centre’s may struggle in the future but retail stocks are incredibly low, making now a good time to invest. (opinion not advice)

Here is our free, uncomplicated, and extensive ASX portfolio

https://youth-investment-group.com/portfolio/

Here is our free, uncomplicated, and extensive breakdown of smart COVID-19 Strategies

https://youth-investment-group.com/2020/04/09/how-to-profit-off-smart-investments-during-covid-19/ 

If you enjoy our articles or are wanting to learn more, you can subscribe to us for free via email and get updates when we post new articles. From all of us at YIG, thank you for the support.

The information above is not financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.

Written by Marlon Ferguson, Associate of YIG.

 

 

Is BBUS the best way to make money during the crash?

Every investor must understand bulls and bears make money, but pigs get slaughtered. In other words, you can profit when the market goes up or down, but if you are too greedy, you will get burned.

We are in a down market (opinion, not advice). Yes, there are bullish recoveries. However, these are known as false reversals. To make money off a down market investors flock to the following strategies.

  1. Gold stocks = Negative correlation to the market
  2. Shorting stocks through options, futures, and swaps (financial derivatives)
  3. Inverse ETFs  = A growing trend.

Today we will be discussing a polarising inverse ETF ASX: BBUS.

Article outline 
1. Why is BBUS a popular inverse ETF?
2. The hidden risks behind BBUS. 
3. Is BBUS the golden ticket in the down market?

Why is BBUS trending ?

BBUS is an inverse ETF. An inverse ETF at a basic level goes up when the market goes down. BBUS is an inverse ETF of the S&P 500 (US index). Thus, if the S&P 500 plunges BBUS surges.

America is suffering on all fronts at the moment. Similar to Germany in World War II. The American economy is experiencing:

Considering the above factors, it should not come as a surprise that BBUS rose 150% in a month (Feb 20th – March 23rd). While, BBUS trades at the $3.30 mark, a 50% decrease from its high of $6.60, the inverse ETF is still popular.

Why? Because the above factors are still crippling the American economy as we speak. Unemployment is expected to rise in the coming months. The Oil crisis is still intensifying. People are not focusing on buying new homes. Ultimately,  causing housing prices to plummet. COVID-19 continues to keep businesses closed and inject fear into society.

Most importantly, American people are locked in their houses without a job. Meaning people are not spending and stimulating the economy. The American government is holding the economy together by a stimulus string. Therefore, BBUS is a hot inverse ETF. Because there is still the argument that America could slide into a recession. In which, BBUS would skyrocket.

 

Why BBUS is not a normal Inverse ETF?

Now when I said if the S&P 500 goes down BBUS goes up, it is actually not that simple. BBUS is a leveraged inverse ETF. What does that mean?

* The video is quite long (10 minutes) – watch if you want to further understand inverse ETFs.

Normal inverse ETFs mirror the index in equal but opposite way. For example ASX: BEAR  is a normal inverse ETF of the ASX 200. Meaning, if the ASX 200 goes down by 2% then BEAR goes up by 2%. Normal inverse ETFs get the 1:1 ratio by using shares that have a negative correlation to the market (beta -1).

Leverged inverse ETFs go 2x, 3x or even 4x in the opposite direction to their linked index. BBUS holds a 2-2.75: 1 ratio over the S&P 500. Meaning if the S&P 500 goes down by 10% then BBUS goes up 20-27.5%. However, the flip side  is also true. In which you would suffer a horrific capital loss (on paper). BBUS gets its 2-2.75:1 ratio by using US futures (financial derivative). Because the S&P 500 is not open during ASX trading hours. Thus, the BBUS’s performance during the day will reflect movements in the US futures market. 

It is simple to short a US recession through BBUS as a retail investor. Because all you have to do is purchase BBUS shares. However, it is only simple because behind the scenes Beta Shares Fund managers are dealing with complex financial derivatives (US futures). Therefore, if you are willing to be at the mercy of US futures and let the fund managers do the complex trades then BBUS could be the investment for you.

Think of BBUS as a BIG Short of the American economy. If you are wrong, BBUS’s leverage will see your money evapourate. However, if you are right in predicting the US recession, BBUS shares should make you an unimaginable fortune (opinion, not advice).

When is BBUS worth the investment?

Before I start, I am obliged to remind our viewers that this is not advice only general commentary from my extensive research in this area.

Short: Between now and the coming months.

The likelihood of the US entering a recession is high (based on my research, not advice). Thus the possibility of BBUS soaring once a recession looms is high.

Right now, we are in a false recovery. The illusion of a recovery is causing BBUS to plummet. Making some investors apprehensive about investing in BBUS. I expect the decline in BBUS to continue in the short-term. Because, the reopening of the economy, flattening of the coronavirus curve, and relaxation in restrictions should cause even more bullish activity. In which BBUS declines further.

However, once a second wave appears, the bulls will run away, and BBUS should rise. Also, even if COVID-19 miraculously fizzles out in the coming months, the virus caused irreversible damage. Meaning a recession is likely.

You always want to be ahead of the curve. So the best time to invest in BBUS is when the market is bullish but will soon be bearish (opinion not advice). Why? Because the bullish activity will allow you to get an excellent entry point (opinion not advice).  The bearish market will boost BBUS up. Thus, if unemployment rises, the oil crisis intensifies, and housing prices decline even when the economy reopens, there is a good chance that the recession is inevitable.

 

Here is our free, uncomplicated, and extensive ASX portfolio

https://youth-investment-group.com/portfolio/

Want access to free, uncomplicated, and smart COVID-19 Strategies then click below?

https://youth-investment-group.com/2020/04/09/how-to-profit-off-smart-investments-during-covid-19/ 

The information above should not be taken as financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.

Written by Patrick McLoughlin, Senior Manager of YIG.

Is ASX: OOO the riskiest or smartest oil investment?

Ever since oil plunged into negative territory, every man and his dog became interested in oil investments. Negative oil future contracts created a frenzy of buyers around ASX ETF OOO.

Article outline 
1. Do OOO holders understand the ETF?
2. The alarming risks associated with OOO. 
3. Is OOO even worth considering?

 

Why the hype around OOO, have investors got it wrong?

OOO aims to track the price of West Texas Intermediate (WTI) crude oil futures. That is OOO at a base level. However, you should never invest in ETFs, only knowing the base level. It seems some investors dove straight into the OOO ocean without checking for any sharks. Some investors thought oil is negative, it must go up, and if OOO tracks oil, then OOO must go up, right?

It is more complicated than that. Grab a seat. Because if you invested in OOO or you are interested in OOO, you will want to pay close attention.

First, what are futures? 

A future is a contract. The contract allows someone to buy an asset (such as oil) at an agreed price. However, the asset, such as oil, is paid for and delivered sometime in the future.

How investors make money off oil futures?

Investors trade oil using monthly futures. Once a trader buys an oil future, they agree, on paper, to receive a delivery at the end of the month. However, traders do not want physical oil. Hence, traders buy oil futures with the sole purpose of selling them, before expiration, to make a profit.

OOO purchases month a’s future and then sell’s month a’s futures to buy month b’s futures. OOO does this to maintain exposure to WTI constantly. Thus you cannot look at each monthly transaction in isolation.

Thus, you can see there is more to investing in oil then simply buying and selling a commodity.

 

 

Investors need to know the risks!

1) Contango: When each subsequent month of futures is priced higher than previous e.g May $21.40 June $25.40 

  • If those prices remain fixed and I buy May at $21.40 and sell May at $21.40 that is bad. Because I can only get 87% exposure to oil in June. $21.40/$25.40 = 87%.

 

  • You can still make money in contango. However, May’s price would have to rise by 14%+ (to $25+) before it expires. Allowing you to sell May’s contract, buy June’s contract, and make a profit.

2) Backwardation: When each subsequent month of futures is priced lower than previous months e.g June $21.40 July $20.20

  • If those prices remain fixed and I buy June at $21.40 sell June at $20.20 that is good for the short term. Because I can sell June, buy July’s contract and still make a profit. However, in the long-term, you do not want oil to go down.

 

  • Backwardation explains why oil was a bad investment over the past 5+ years.

 

3) Uncertain oil crisis: 

The future direction of oil is uncertain. Meaning extreme contango and extreme backwardation are happening. The volatility around oil is not going away anytime soon. Especially when the Russia-Saudia Arabia oil crisis is intensifying. Also, oil companies continue to produce oil even though there is no demand. Creating a massive demand-supply disparity. 

 

When investing in ASX OOO, you need to consider 

  1. What does the current futures curve look like (upward or downward) = Contango or Backwardation?
  2.  Do you expect the price of oil during the month (spot price) to stay fixed, go up, go down?
  3. How long do you expect to hold the investment?

 

Thus, you can see there is more to investing in oil then simply buying and selling a commodity. If you are going to invest in OOO, you must understand all the risks. Just like Warren Buffet advocates, “Invest in businesses YOU understand”. Hence, invest in ETF’s YOU understand completely.

 

Is OOO worth the investment?

Before I start, I am obliged to remind our viewers that this is not advice only general commentary from my extensive research in this area.

Yes, OOO offers simple exposure to the oil futures. However, it is simple for the investor because the fund managers are dealing with difficult numbers.

Personally, I would invest in OOO for the long-term once there is enough evidence to support an oil recovery.  Because Contango would work in my favour.

All in all, OOO is an excellent short-term investment if your timing is impeccable, and you understand contango and backwardation. However, if you miss time the investment, you could be badly burned. Thus, I would suggest diverting your attention to these two oil stocks, which are safer and are poised for a breakthrough. Especially, while the oil outlook is uncertain. 

 

Here is our free, uncomplicated, and extensive ASX portfolio

https://youth-investment-group.com/portfolio/

Want access to free, uncomplicated, and smart COVID-19 Strategies then click below?

https://youth-investment-group.com/2020/04/09/how-to-profit-off-smart-investments-during-covid-19/ 

The information above should not be taken as financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.

Written by Patrick McLoughlin, Senior Manager of YIG.

2 Oil Stocks that hold huge upside potential.

Flashback to last Tuesday and oil plummeted to a historic low. Oil dropped into negative territory. Instantly, people that’s great. Because companies like BHP will pay me to take barrels of oil off their hands, right? Unfortunately, the idea of being paid to take oil is unrealistic for the average Joe. Where would you store your barrels? What warehouse would you use? Plus, do not forget the shipping costs?

However, I come bearing great news. The average investor can profit off smart investments relating to the oil crisis. Oil is trading at an extremely low price. However, current oil prices are temporary. Once the virus fizzles out, travel returns to normal, and the economy recovers oil should surge again (opinion not advice).

Oil crisis investments include:

  • 1) Investing in oil companies (stocks) – Average investors/people new to investing 
  • 2) Investing in oil Exchange Traded Funds (ETFs) – Intermediate Investors 
  • 3) Investing in Exchange Traded Commodities (ETCs) – Experienced Investors 

If you want to learn:

Then click on our free, digestible, and extensive report HERE.  Today, we are discussing one ASX oil stock and one ASX ETF.

Santos (ASX: STO) 

Who is Santos? 

  • Santos is a leading oil and gas producer within the Asia-pacific region.
  • STO provides affordable and reliable gas to the Australian and Indonesian markets (homes and businesses).
  • STO produces and supplies oil to the Australian, Indonesian and Vietnamese markets.

Current Developments

* (Think of each development as an asset that generates revenue for STO)

1) Cooper Basin (Queensland project)

2) Northern Australia and Timor Leste – Oil and gas explorations.

3) Papua New Guinea – PNG Liquefied Natural Gas project (PNG LNG)

4) Queensland and New South Wales – Liquefied Natural Gas Projects (GLNG)

5) Western Australia

Financials Q1 2020

  • Sales were down 13% (YOY)
  • Liquidity total is US$3.1 billion
  • US$265 million of free cash flow
  • Net debt was US$3.1 billion
  • Gearing weighed in at 29%

 

How is STO responding to COVID-19 and the oil crisis? 

  • STO is hedging 14.2 million barrels of oil, at an average floor price of US$39, for the rest of 2020.
  • STO secured fixed price domestic gas sales contracts.
  • All growth projects deferred until the uncertainty fizzles out.
  • STO reduced capital expenditure for 2020 by 38%.

Is STO worth the investment? 

Before I start, I am obliged to remind our viewers that this is not advice only general commentary from my extensive research in this area.

STO is an excellent long term investment (opinion, not advice).

  • STO can financially survive the pandemic and beyond. STO’s $3 billion in liquidity and $265 million in free cash flow provides a layer of financial security.
  • STO is acquiring ConocoPhillips’ NT and Timor-Leste business in H1 2020. Providing, STO with a low-cost, life long asset for future growth.
  • STO’s disciplined operating model saw the business reach multi-year oil/gas production highs across their five developments. STO should continue the upwards trend once COVID-19 dissipates.
  • S&P Global Ratings (stable outlook) and Morgan Stanleys  (add rating) view STO as a viable business
  • Also STO offers a dividend. When oil recovers I expect to see a corresponding increase in STO’s dividend.

Oil prices will rebound eventually. Once there is significant evidence to suggest a steady oil recovery then ill jump in STO. I would be holding STO for the long-term. Because historically oil indexes remain bullish or bearish for multiple years. Meaning, the recovery should last a while.

 

 

 

Beta Shares Global Energy ETF (ASX: FUEL) 

However, not every trader has time to find the best oil companies. When time is not on your side, an Exchange Traded Fund can come in handy.

FUEL is an ETF that provides investors with exposure to the word’s largest oil companies, such as Chevron and ExxonMobil.

What are the benefits of ASX: FUEL? 

  • Diversified: Access to the world’s leading energy companies.
  • Liquidity: Investors can get in and out at any time. It is just like trading any ASX listed share.
  • Undervalued: The oil crisis making the fund undervalued (opinion not advice).
  • Simplicity: Saves investors the headache of searching for the best oil company.

 

What are the risks with ASX: FUEL? 

  • Prolonged oil crisis: You could take a short-term paper loss until the oil crisis and COVID-19 fizzles out. Because the expiration date of either crisis is uncertain, the potential paper loss could be three months, six months, or even a year.

 

Is FUEL worth the investment? 

Before I start, I am obliged to remind our viewers that this is not advice only general commentary from my extensive research in this area.

Personally, investing in gigantic oil companies is the best way to profit off the oil crisis. Because the oil behemoths like Chevron will likely survive the pandemic. Also, if times get tough, the American government would likely bail out the oil giants. Because they account for 6.7% of America’s GDP. Therefore, investors are de-risking their investment by investing in bankrupt-proof oil companies (opinion not advice). Also, FUEL offers a dividend.

I will be investing in FUEL for the long-term. I am getting in once there is significant evidence to suggest an oil recovery.

Here is our free, uncomplicated, and extensive ASX portfolio

https://youth-investment-group.com/portfolio/

Want access to free, uncomplicated, and smart COVID-19 Strategies then click below?

https://youth-investment-group.com/2020/04/09/how-to-profit-off-smart-investments-during-covid-19/ 

If you aren’t already subscribed to us, you can subscribe for free via email below and get updates when we post new articles and stock market news. From all of us at YIG, thank you for the support.

The information above should not be taken as financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.

Written by Patrick McLoughlin, Senior Manager of YIG.

Macquarie Bank looks to BUY Virgin – is the airline now an attractive investment?

Written by Sergeo Domtchenko 

It is fair to say that the coronavirus is not hanging around to take any hostages. On Monday evening, Virgin Australia (ASX: VAH) became the highest-profile casualty of the pandemic. Virgin soon announced its intention to enter voluntary administration.

The thought of voluntary administration came off the back of Virgin, dismissing 16,000 employees and the Federal government denying Virgin’s application for a $1.4 billion ‘bail out’ loan. Scott Morrison stood his ground, saying that, “Virgin’s shareholders have deep pockets, and we have no interest in using taxpayer money to bailout a group of billionaires”.

Since then,  Virgin entered a trading halt. Upon entering into administration, Virgin owed $4.8 billion in debt. Consequently, the credit rating agency ‘Fitch’ downgraded Virgin’s credit rating last month. According to Ms Amaro, “Virgin is burning through cash at a rate that will see them burn out around September”.

Deloitte Has a Huge Task Ahead of Itself

Deloitte faces a difficult task in navigating Virgin through COVID-19. Our viewers to understand that Virgin isn’t being sold off. Instead, an independent third party, Deloitte, will analyse the financial structure of the company and provide recovery strategies.

Fortunately for Deloitte, there are several ways that they can choose to restructure Virgin (according to aviation journalists). These include:

  • Downsizing the size of Virgin’s fleet = minimise levels of excess capacity on routes.
  • Selling off TigerAir. An excellent way of injecting liquidity into Virgin.
  • Reducing the number of international routes.
  • Increasing the number of domestic route services.
  • Reducing its airfares to appeal more to price-sensitive customers.
  • Taking advantage of the ridiculously low oil prices by loading up on oil barrels.

The Bidding War is Heating Up

In light of the government’s absence, an array of hungry companies are approaching Deloitte. Ultimately, creating a bidding war. While Mr. Strawbridge from Deloitte is not disclosing the  details of any potential buyers, he did say,  “Up to 20 individual companies are interested in Virgin Australia”.

The most prominent buyers amongst the group  include Wesfarmers (ASX: WES) and Macquarie Group (ASX: MQG). While non-binding offers are not due to till mid-May, both companies’ presence in Australia will serve as an invaluable asset. Moreover, Macquarie Bank has experience in running airports and other transport infrastructure. Thus, making MQG a suitable candidate.

The bidding war has also transpired a State of Origin dual between the Queensland and NSW state governments. On Tuesday, the Queensland government stated that it is willing to provide $200 million to Virgin Australia. However, the company must maintain its headquarters in Brisbane.

Following this, the NSW government said that it is willing to support Virgin, so long as it moves its headquarters to the new Badgery Creek airport that is due to open in 2025. Knowing how much the airline adds to Queensland’s economy, this prompted Queensland’s state development minister to tell NSW to “back right off”. It will be interesting to see who comes out on top in this enthralling bidding war.

Is Virgin Worth the Investment?

Before I start, I am obliged to remind our viewers that this is not advice, only general commentary from my extensive research in this area.

Virgin’s trading halt and entrance into voluntary administration captivated investors. However, Investing in Virgin holds significant risks. First, the company has a debt bill of $4.8 billion. Virgin’s outstanding debt is them to hold a D/E ratio of 930.9%. Moreover, even before COVID-19, Virgin had insufficient liquidity to meet its current financial obligations.

However, it is not all gloom and doom for Virgin. In 2019, the airline grew revenue year-on-year coupled with a remarkable gross profit ratio of 79.8%. Also, for the past two years, Virgin recorded outstanding cash flow to assets analysis of 0.9. When compared to the generally accepted standard of 0.3, this highlights the efficient nature of Virgin’s asset structure.

Where Virgin falls over is its expense ratio. For 2019, the airline recorded an expense ratio of 78.6%. This means that the company was only left with an operating profit of 1.2% before we account for interest expenses and taxation.

A Final Word

I do see Virgin Australia coming out as a much stronger company on the other side of this administration. (opinion not advice) The most significant areas that Virgin needs to improve include increasing its liquidity, reducing its D/E ratio, and reducing its expense ratio. If a potential buyer is found, the first two problems should resolve themselves. Also, the integration of automated systems should reduce Virgin’s expenses moving forward. Thus making the airline, in my opinion, a viable investment.

Here is our free, uncomplicated, and extensive ASX portfolio

https://youth-investment-group.com/portfolio/

 

Here is our free, uncomplicated, and extensive breakdown of smart COVID-19 Strategies

https://youth-investment-group.com/2020/04/09/how-to-profit-off-smart-investments-during-covid-19/ 

If you enjoy our articles or are wanting to learn more, you can subscribe to us for free via email and get updates when we post new articles. From all of us at YIG, thank you for the support.

The information above should not be taken as financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.

Written by Sergeo Domtchenko, Associate of YIG.

Sydney Airport surges off breaking news – is it too late to invest?

The ground is splitting out from under us. On one side, you have investors claiming the bullish recovery is on. While other investors believe the bears are still out for blood. The market divide might be making it challenging for new investors to make sense of the market.

Most new investors are looking to snap up quality blue-chips in the banking or travel industry. However, with travel stocks acting like a roller coaster, many new investors are wondering when they should jump on?

The statistics below showcase the crazy ride so far.

The realistic expectation for scientists to develop a viable COVID-19 vaccine is 12-18 months. Vaccine projections, combined with global lockdowns is causing the travel industry to come to a screeching halt.

Investors are buying cheap airline stocks  only to sell once the travel industry goes back to ‘business as usual.’ Thus, positive COVID-19 treatment results will see the travel industry return in a short time frame.

 

Why did Sydney Airport act like a bull last week?

On Friday, the travel industry, especially SYD, surged after news got out that Gilead could have a viable COVID-19 treatment (Remdesivir’s). If you would like to learn more about Gilead’s groundbreaking results click here.

Investors interpreted Gilead’s results to mean the virus could dissipate within a shorter timeframe. Meaning travel stocks would return to normal sooner. Thus, triggering a buying frenzy of SYD on Friday.

Moreover, SYD has access to approximately $2 billion in funding to cover its $1.3 billion in expiring debt over the next 12 months. Therefore, it makes sense that investors flocked to SYD, one of the most attractive airlines, on the back of good news.

Furthermore, there is now a positive relationship between Gilead’s COVID-19 developments and airline shares. 

 

Is it too late to snap up airline shares ?

Before I start, I am obliged to remind our viewers that this is not advice only general commentary from my extensive research in this area.

Short answer: No

Airlines are running flights with only 5% capacity (essential travel). Most airlines are not expecting the level of demand in FY19 to return until at least FY21/22. Within this time frame, the likelihood of setbacks is high. Meaning, investors have enough time to invest on the back of a decline and not on the end of a bullish run like last week.

Also, many investors will look to pump and dump travel stocks, such as Qantas and Sydney Airport. Because the future remains uncertain. Thus, providing window opportunities to get in on the back of a sell-off.

Friday’s market reaction taught us that airline stocks surge whenever there is positive COVID-19 development. Therefore, If I were investing in the travel industry, I would make sure I was up to date on the recent COVID-19 treatment developments, especially from Gilead.

The news around Gilead paints an optimistic future. However, the rollercoaster is not over yet (opinion, not advice). Therefore, investors should not rush to invest in these travel stocks.

 

Here is our free, uncomplicated, and extensive ASX portfolio

https://youth-investment-group.com/portfolio/

Want access to free, uncomplicated, and smart COVID-19 Strategies then click below?

https://youth-investment-group.com/2020/04/09/how-to-profit-off-smart-investments-during-covid-19/ 

The information above should not be taken as financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.

Written by Patrick McLoughlin, Senior Manager of YIG.

Morgan Stanley may restructure Virgin’s tattered wings after the government denies a $1.4 billion bailout.

To say that Virgin Australia (ASX: VAH) is finding it challenging to navigate through the COVID-19 storm would be an understatement. Virgin’s possible entry into voluntary administration showcases how the airline is on the brink of collapse.

Voluntary admission may be excessive. However, considering Virgin’s cash runway, mountains of debt, and recent decision to stand down 80% of its workforce, voluntary administration seems understandable.

Moreover, rating agency Fitch downgraded Virgin’s credit rating. Ms. Amaro said, “They’re burning through cash at a rate that will see them burn out by September.” I agree with Ms Amaro. Because:

  • a) The availability of funds is shrinking as the credit markets dry up, and
  • b) Virgin is grounding their aircraft’s, which is significantly reducing revenue, but they are still servicing leases. Thus, Virgin’s liquidity is under a serious threat.

Update on the government Bailout

Virgin desperately needs a government bailout. Which is why Virgin is using the threat of voluntary admission as leverage to gain a government lifeline. However, the government is not having a bar of it, as Josh Frydenberg said, “They’ve got deep pockets.”

Ultimately, shifting the burden onto Virgin’s shareholders to pull the airline out of financial distress. Virgin Australia’s shareholders include Etihad Airways, Nanshan Group, Richard Branson’s Virgin Group, HNA Group and Signapore Airlines. However, even Virgin’s shareholders are refusing to cooperate. Leaving Virgin, and the Australian government in a standoff.

Personally, the government should engage in an equity bailout. In which the government would own part of Virgin and then sell it in the future. The Australian government could use the profit to service their ever-growing debt. However, this scenario seems unrealistic as Frydenberg said “We want to see two airlines in the domestic market, but we’re not in the business of owning an airline.”

The absence of a government bailout resulted in Virgin approaching Deloitte, Morgan Stanley, UBS, and Houlihan Lokey for a possible debt-equity swap. Essentially, one of the following banks will come in as a white knight, pump in liquidity in return for substantial ownership in Virgin.

Is Virgin worth the investment?

Before I start, I am obliged to remind our viewers that this is not advice only general commentary from my extensive research in this area.

Virgin’s COVID-19 nosedive is sparking incredible interest for investors. Virgin’s trading halt expired today. However, before the market opened, Virgin suspended trading for another seven days or until they provide a funding/restructuring update.

If I was looking to invest in the aviation industry, I would not put my money in Virgin. We, all know the saying buy low sell high. However, there is a reason why Virgin is trading at 0.086 cents. Virgin is up to its neck in debt, burning through its cash at an unprecedented rate and could possibly enter voluntary administration. Which are all red flags, in my opinion. If:

  • A white-knight bank can restructure Virgin
  • COVID-19 improves and
  • Virgin receives a significant liquidity boost

Then VAH might be a viable investment (opinion not advice).

Instead, Qantas (ASX: QAN) seems like a better investment. Now yes, Virgin could survive the pandemic. However, Qantas is better positioned to emerge from the virus as a more dominant airline. Qantas recently received an additional $1 billion in debt and can draw on $3.5 billion in assets. In turn, Darwinian’s evolutionary theory will see Qantas come out on top. Because out of all, the battered Australian Airlines Qantas is by far the fittest.

 

Here is our free, uncomplicated, and extensive ASX portfolio

https://youth-investment-group.com/portfolio/

 

Here is our free, uncomplicated, and extensive breakdown of smart COVID-19 Strategies

https://youth-investment-group.com/2020/04/09/how-to-profit-off-smart-investments-during-covid-19/ 

If you enjoy our articles or are wanting to learn more, you can subscribe to us for free via email and get updates when we post new articles. From all of us at YIG, thank you for the support.

The information above should not be taken as financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.

Written by Patrick McLoughlin, Senior Manager of YIG

Morgan Stanley changes its position after Flight centre raises $700 million and closes 799 stores.

The Tourism industry was surging before COVID-19. However, the virus is causing our treasured travel stocks to fall off the cliff. Just by looking at Qantas (ASX: QAN), Virgin (ASX: VAH), Royal Caribbean Cruises (NYSE: RCL) and Carnival Corp (NYSE: CCL), the industry-wide impacts become clear. The above companies are slashing employees in record numbers, experiencing significant slumps in profit, and are begging for government bailouts. Just imagine how new restrictions worldwide would amplify the already concerning consequences above. The current fallout of airline companies is causing many travel agencies to become infected by the virus. Today we are discussing whether Flight Centre (ASX: FLT) and Webjet (ASX: WEB) are viable long term investments?

Can Flight Centre recover and emerge stronger?

Flight Centre’s share price is nosediving, currently trading at an 80% discount of $10.60.

COVID-19 is causing the travel agent to suffer significant earnings losses, devise drastic liquidity strategies, and even request government funding.

So what is FLT’s plan for the coronavirus?

Flight Centre is implementing a plethora of cost-saving and liquidity initiatives to ensure survival throughout the pandemic. These include

  • Flight centre reducing monthly operational costs from $227 million to $65 million by July 2020
  • Reducing global stores from 593 to 222
  • Australian Flight centre stores decreasing from 944 to 516
  • Possibly selling their Melbourne Head Office
  • Increased debt facilities by $200 million
  • $700 million capital raising on Monday
  • Cancelling April’s $40.1 million interim dividend
  • Flight Centre will incur $210 million in one-off costs (Withdrawal from leases and redundancies) to implement these initiatives

Cost-savings are essential in ensuring a flexible balance sheet throughout the virus. However, the real question is, can Flight Centre’s earnings recover?

Analysts on Flight Centre

Morgan Stanley changed its rating from a hold to an ADD, with a price target of $13.00. The broker estimates, excluding government support, that Flight Centre has an 18-month liquidity buffer. Also, Morgan expects FLT to suffer huge earnings losses throughout FY20 and FY21 but forecasts a recovery during FY22-FY23.

UBS, like Morgan, is backing the Travel agent giant and believes FLT will only enter recovery in 2023. Upon analysis, UBS claims Flight Centre is in a position to cover cash costs for the coming 11 months. Moreover, FLT’s ability to operate throughout the virus reassures UBS that the company will transcend from COVID-19 with more market share.

Like UBS, CITI is also rallying behind the Travel agent mammoth. Citi forecasts Flight Centre’s transaction value to be down -22% in FY22. However, claims that recovery for FLT is probable as the market stabilises and the demand for air travel returns to normal post-coronavirus.

Moreover, Consensus and Morningstar are rallying behind FLT for long-term recovery.

Flight Centre’s History

Furthermore, Flight Centre is a 38-year-old veteran. Meaning management navigated FLT through the unkind waters of the 1987 crash, the GFC and the SARS outbreak. COVID-19 is the most challenging event FLT have encountered in over 30 years of business. However, Flight centre is “well-positioned to weather a prolonged recovery and take advantage of the significant opportunities that will arise once conditions normalise” (MD Graham Turner).

Also, the virus will inevitably cause smaller and less experienced travel agents to close. Meaning, in the foreseeable future Flight Centre should experience an  increase in market share.

I firmly believe that Flight Centre is an excellent stock for patient investors. However, I would wait until the COVID-19 storm clears, travel restrictions loosen, and the capacity on airplanes return to a reasonable level. Your own research is required as this is my opinion.

Hang on, what about Webjet?

WEB was arguably, one of the best performing travel agents pre-COVID-19. However, the virus wrenched WEB back down to its 2015 price of $2.80.

Webjet raised $231 million in equity on the 2nd of April. In turn, WEB looks well-positioned to come out on the other side of the tunnel.

If Australia contains the virus, then the investor confidence behind Webjet might re-awaken. However, Webjet, like Flight Centre, is forecasted not to recover until FY22-23.

Overall, based on my research, FLT is a more attractive investment. Essentially, Flight centre is the Qantas, whereas Webjet is the Virgin equivalent in the travel agent industry.

Here is our free, uncomplicated, and extensive ASX portfolio

https://youth-investment-group.com/portfolio/

If you enjoy our articles or are wanting to learn more, you can subscribe to us for free via email and get updates when we post new articles. From all of us at YIG, thank you for the support.

The information above should not be taken as financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.

Written by Patrick McLoughlin, Senior Manager of YIG.

The Coronavirus is throwing punches, yet Telstra still stands ?

COVID-19  is dealing severe blows to our beloved blue chips. Lockdowns are forcing retailers to close, travel bans are causing airlines, such as Qantas, to be on life-support, and the ‘Big Four’s’ dividends are under threat.

Despite the ASX bloodbath, Telstra (ASX: TLS), the defensive veteran, is successfully bobbing and weaving the virus’ punches. Telstra’s success in the ring maybe because of their long term history or the fact that millions of people depend on their mobile phones. 

Today we are discussing how Telstra is still standing, how COVID-19 is affecting Telstra, and whether the Telco giant is worth the investment?

Why is Telstra still standing?

Could you live without your mobile phone and the internet throughout the virus? The answer to this question is a critical factor in why Telstra is surviving.

Whether it be to skype grandma, make a work call or even binge watch YouTube videos to drown out the crisis, it’s clear that we all need our phones through these unprecedented times.

Telstra is a 45 year old veteran. Management have navigated the Telco mammoth through the unkind waters of the 1987 crash, the 2000-2004 dot come crash, the GFC, and the SARS outbreak. Providing investors with the reassurance that Telstra is well equipped with the economic knowledge to survive the coronavirus.

Lastly, investors want to hold reliable dividend companies during a crisis. Between 2000 and the GFC Telstra was the best dividend stock. Thus it should come as no surprise that investors see Telstra as an attractive and safe investment during the coronavirus. Especially when our ultra-low cash rate of 0.25% is limiting the areas in which investors can generate a stable income yield.

 

How is COVID-19 impacting Telstra ?

Telstra is not immune to the coronavirus. While their abs of steel are withstanding the punches, COVID-19 is still forcing the telco giant to implement drastic measures. These include:

1) Telstra is not laying off any employee for the next 6 months

The company will still strive to reduce fixed costs by $2.5 billion by the end of FY22. However, the $2.5 billion target will not involve any lay-offs over the next 6 months.

2) Telstra is hiring an additional 1000 employees

In turn, the new recruits will ensure that call centre volumes are kept at an optimal level.

3) Telstra is bringing $500 million forward in capital expenditure 

Allowing the telecom leader to increase the speed of their existing networks and accelerate the rollout of 5G.

4) Extending a helping hand to small businesses and customers 

Any small business or customer who is unable to service their Telstra bills will see their payments be suspended until the end of April. In turn, earnings should suffer in the short term, but the customer is kept happy, which should sustain long-term growth.

 

5) Reductions in 5G and existing network pricing 

Telstra’s game plan was to increase the price of 5G in July. However, with the lack of jobs and an expected recession or even depression, people’s discretionary income is contracting. In turn, the economic decline limits Telstra’s ability to charge extra for 5G or even upsell customers to higher plans.

To add insult to injury, the coronavirus is disrupting global supply chains, which may delay the rollout of 5G.

 

All in all, Telstra is receiving fewer wounds than are other blue chips. Without a doubt, Telstra will suffer in the financial and dividend department. However, the telecom behemoth can still meet their FY20 earnings guidance. Which speaks volumes as many other companies, such as Qantas (ASX: QAN)and Harvey Norman (ASX: HVN)  are withdrawing their guidance due to the volatility.

 

Is Telstra worth the investment ? 

Before I start, I am obliged to remind our viewers that this is not advice only general commentary from my extensive research in this area.

In my opinion, Telstra looks like a promising long-term investment.

Telstra’s COVID-19 measures, the new competition, and the fact that millions of people depend on their mobile phones should see TLS continue to bob and weave the coronavirus’s heavy hits.

Moreover, Telstra has proven time and time again to be a safe hold during economic uncertainty. Thus, if the Australian economy worsens, then  we can expect investors to flock to the telecom captain.

Without a doubt, Telstra holds risks. Telstra faces an uphill battle, much like the banks,  in keeping their finances and dividends at a level that still pleases investors. UBS forecasts a 12.5% cut to Telstra’s dividend.

Lastly, with UBS (BUY), Goldman Sachs (BUY), Morningstar (Undervalued), and Consensus (Moderate BUY) all rallying behind Telstra, you could argue that TLS is an attractive investment. However, your own research is needed, of course.

 

Here is our free, uncomplicated, and extensive ASX portfolio

https://youth-investment-group.com/portfolio/

 

 

If you enjoy our articles or are wanting to learn more, you can subscribe to us for free via email and get updates when we post new articles. From all of us at YIG, thank you for the support.

The information above should not be taken as financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.

Written by Patrick McLoughlin, Senior manager of YIG.