Bubble Delays | Qantas Mega Cap Raise

30 June 2020

Global markets were higher overnight in choppy trading (S&P 500 Index +1.1%) as investors weighed the threat to the American economy from a resurgence in coronavirus cases – with record infections in Texas, Florida and California. Meanwhile, health leaders called on the UK to prepare for a possible second wave, and Australia recorded its largest spike in cases since April. 
Only banks showed any firm direction, surging almost 2% after US regulators eased rules that will free up capital. Investors also grappled with a mixed batch of economic data, after initial jobless claims topped estimates.

Closer to home, yesterday Qantas CEO provided a harsh reality check by suggesting the much hyped Trans-Tasman travel bubble has progressed but access is unlikely until July 2021, much later than commentary from official NZ government sources. 

 

Qantas (QAN:AX)

Qantas yesterday announced a massive A$1.9bn equity raising at +$3.65 a share (12.9% discount) to fund a 3 year recovery plan and pay down debt. 

Qantas expects domestic demand to fully recover in the 2022 financial year while an international recovery is expected to be slower with ~50% of pre-crisis demand expected in the 2022 financial year.

Qantas plans to lay off at least 6,000 staff (20%) and ground a third of its fleet in a plan to cut costs by A$15 billion over three years. The institutional component of the capital raise ($1.36bn) was well bid and taken up by investors with excess demand.

We will release a full update on Qantas in our weekly report, but remain wary of the Airlines, and believe Air New Zealand will be the next to raise capital. 

 

   
Australia & New Zealand Market Movers

The Australian market fell sharply yesterday (ASX 200 -2.5%) on escalating concerns that the coronavirus is ballooning of control in the US, and as concerns are becoming more acute domestically with the Australian state of Victoria recording 33 new cases, its biggest increase in more than two months. All major stocks and sectors were in the red, with healthcare stocks CSL and Resmed the only major stocks to be in positive territory. 

The New Zealand market sold off on Thursday (NZX 50 Index -1.2%) joining global moves on fears of a second wave of covid-19 which weighed on the outlook for company earnings. Air New Zealand dropped -8% as Trans-Tasman rival Qantas Airways announced a major restructuring. NZ’s national carrier has already laid off 4,000 staff and plans to keep shrinking its workforce as it attempts to rebuild back towards profitability by 2022.
Refining NZ decreased after saying it plans to simplify its operations and focus on supplying fuel into Northland and Auckland. It’s also weighing up a staged transition to an import terminal, something shareholder Z Energy is in favour of.

 

3 Things Markets Will be Watching this Week

  1. ​​​Covid-19 related news flow remains top of mind. 
  2. The Reserve Bank of New Zealand June OCR Review takes place on Wednesday, with the market not expecting too many surprises. 
  3. In the US there will be a release of Q1 GDP figures and the Fed is scheduled to release results of its annual stress tests on the largest US banks. 

Have a Great Day,
 

Team

Closer to home, yesterday Qantas CEO provided a harsh reality check by suggesting the much hyped Trans-Tasman travel bubble has progressed but access is unlikely until July 2021, much later than commentary from official NZ government sources. 

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