Strong Fundamentals6 Feb 2019 08:05
I was not surprised by this drop because this is how the market operate and the heavy weights make money. The Q1 results should be good. That is why they use the fearful situation to buy at lows. For those who fear the fundamentals in this company, there are two issues – results for the Q1 & the debt levels.
1) Take comfort from the fact that most of the airlines have flown 10% or more passengers during the quarter ended 31/12/2018 and had been profitable. That trend should be seen in TCG. While there are lot of positives in the CEO reviews, a significant one would be the partnership with Expedia. The transformation has taken effect from August/September 2018 and the TCG websites are actually run by/contain contents of Expedia. The extent of the contribution towards the revenue is not known and even the CEO has not commented on it. Expedia is the White Horse and it can be a game changer for variety of reasons.
2) Historically, being cyclical nature of the business, TCG has a peculiar debt pattern. It peaks in the December quarter and reduces each of the following quarters and gets to the lowest in September. Rough estimates show that in the last few years the Net Debt has been in the range of£1,200 - £1300 at peak and a reduction of about £350 to £450 in each of the following quarters. The pattern is Q1 1250, Q2 £850, Q3 £450 and Q4 £50to £100. ( all millions)
Unfortunately, last financial year Q3 Debt was £468 but ended with £389 in Q4. The normal reduction did not take place. This was explained to be due to the loss incurred as a result of deep discounts that had to be offered as a result of extended summer heat wave. The pre-booked capacious were essentially sold at a loss. They said they learned a lesson and would be, careful in future when contracting.
Obviously the Net Debt as at December 2018 is going to be higher and I reckon it can be at d £1300 +/-£100.But then the company said the lenders are flexible and would accommodate the increased levels. The peak would have been in December and we have passed it and it will be I the decline now. So we don’t need to worry and the CEO has said he is not going to the shareholders.
GLA
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