Virus Turmoil: Oil Search, Flight Centre, Qantas, Kathmandu, REA Group, Ramsay Health, Aristocrat

Yesterday saw a host of downgrades and other poor news from ASX companies of all sizes – all understandable in the current terrible investment climate as the combination of the coronavirus pandemic and the idiotic price war in oil between Russia and Saudi Arabia wreck market confidence and share price.

That saw Oil Search decide to cancel sale talks for its 15% Alaskan oil prospect and slash spending by up to $675 million to be done by shelving projects around the world.

In the first of what’s expected to be a spate of cutbacks from Australia’s energy companies after the price of oil plunged to multi-year lows, Oil Search said it had immediately suspended all its discretionary spending in a bid to preserve the value of the business.

“These unprecedented times require us to take immediate and decisive steps to position us for a potentially extended period of lower oil prices and business uncertainty,” Oil Search CEO Keiran Wulff said in a statement on Wednesday.

The deep cuts slash the company’s expected investment spending this year by about 40% to a range of $US440 million to $US530 million.

Benchmark Brent crude and West Texas Intermediate have fallen to four-year lows under $US30 a barrel, triggering a sell-off from oil and gas stocks and warnings of project delays and cost-cutting across the industry as companies seek to weather the storm.

The company has already dropped 2020 guidance as its shares have been hammered. In fact, Oil Search’s shares have been hit the hardest, plummeting by more than 50% in the past two weeks to a 15-year low close of $2.44 yesterday – a fall of nearly 8%. They hit a 15-year intraday low of $2.17 in trading.

Meanwhile, Flight Centre shares slipped 4.7% to $14.80 yesterday after the company made it clear it was looking to make deeper cuts to spending and other costs as quickly as possible.

And from the tone of the statement yesterday those cuts will involve job losses across the group, on top of the announcement last week that 100 stores will close.

The cuts come in the wake of the Federal government crackdown on border entry and the Prime Minister telling Australians to stop travelling to avoid spreading COVID-19, including issuing whole-of-world ‘do not travel’ advice.

In a statement, yesterday afternoon (its 4th since the crisis hit) Flight Centre told the ASX it will be significantly impacted by the Prime Minister’s call and border crackdown

“As part of the review, Flight Centre will hold further discussions with stakeholders including landlords, suppliers, vendors, insurers, and banks on way to manage the financial impact of a precipitous drop in travel activity in the near term,” the company said in a statement.

It is talking to the Federal government about an assistance package, given the airlines have been helped (a $715 million package was confirmed yesterday), but warned: “job losses across the industry and within the company are inevitable”.

“Management is determined to overcome the significant challenges that it currently faces and, with the support of our stakeholders, is ready to prosper when conditions eventually normalise,’’ CEO Graham Turner said in the statement.

Flight Centre shares have more than halved since the start of March when they traded at $31.10.

Still, in aviation and travel, Qantas shares slumped again yesterday on the Prime MInister’s no travel call to Australians.

The shares closed down a massive 11.5% at $2.53.

That’s despite Qantas CEO Alan Joyce has in praising the federal government’s decision to waive more than $700 million in charges on the nation’s airlines to ensure they can survive the coming slump as the impact of the coronavirus forces governments and the industry to close down travel here and overseas.

Mr. Joyce said on Wednesday the decision was “very welcome support” for the industry and aviation had been the “first and hardest” hit industry during the global pandemic.

“For all players to receive this support early on is a great help,” Mr. Joyce said.

Qantas announced on Tuesday it was cutting its international capacity by 90% from the end of this month and lopping 60% off domestic capacity as well. The international cuts will last to late May at least as well the domestic cuts – which will almost certainly go lower as passenger numbers fall.

Both Virgin and Air New Zealand announced singeing capacity cuts this week – Virgin has abandoned its international routes and retreated to Australia where it is battening down the hatches. The NZ government will inject $NZ600 million into Air New Zealand to help it survive.

Embattled satellite communications group Speedcast has revealed yet another downgrade in revenue and earnings – this one is linked to the impact of the coronavirus as it struggled to survive.

The company also conceded yesterday that it can’t look at a recapitalisation via an equity raising in the current febrile markets.

The trading update released to the ASX on Wednesday said the virus has had a “substantial impact” on one of its core markets, cruise liners, and as a result, the company is “not yet able to provide a reliable outlook for the performance of the business” for the current financial year, which ends on December 31.

The company also said investment advisors, Moelis is advising it on funding and recapitalisation alternatives given the fact that current equity market conditions preclude a meaningful equity raising.

“Obtaining additional funding will provide Speedcast with the opportunity to engage in meaningful discussions with its lending group and suppliers as part of an overall longer-term recapitalisation of the business,” the company said in the statement.

The company has been in a trading halt since February 3, when it announced a downgrade for the 2019 financial year and a board-level review of “all elements” of the financial accounts for that year, which saw CEO PJ Beylier depart the company.

The board said it is now determining whether the 2019 result should include non-cash writedowns and “additional market disclosure”.

At this stage, Speedcast still expects 2019 financial year earnings before interest, tax, depreciation, and amortisation (EBITDA) before significant items in the range of $US110 million to $US121 million. That just won’t happen.

Shares in Macquarie Group plunged yesterday, falling under the $100 mark for the first time since September 28, 2017.

The shares ended the day at $91.05, down nearly 13% and touched a day’s low of $89.30 in trading.

Macquarie Group shares hit a low of $152.30 on February 20 and are down 39% in the past month.

A rough day (as expected) for NZ-based outdoor clothing and footwear retailer Kathmandu after it slashed its guidance for the year and warned of a “material adverse impact” to earnings from the coronavirus pandemic.

The shares dropped 10.88% to $1.515 and touched a low of $1.335 in early trading in the now-familiar lemming-like rush to exit a stock with a bad news story for the day.

One of the messages from the statement is that job losses are likely with many outlets being forced to close, especially offshore.

And that’s what CEO Xavier Simonet had for investors. He said in a statement the business had seen a significant reduction in footfall across its Australian and New Zealand stores, and said the majority of European stores for the recently purchased surfwear business Rip Curl had been forced to close due to lockdowns in the countries where they are located.

Kathmandu has also placed a freeze on hiring and international travel and has deferred non-essential capital products.

It also said it would “optimise labour costs” for its over 1,000 employees. The company reports its half-year results on March 30, which includes the month of January but not February or March, the months hardest hit by the coronavirus outbreak.

“Given the rapidly evolving COVID19 situation, we have been reviewing available advice and data on a daily basis and taking steps to protect the wellbeing of our team and customers, and to reduce the adverse impact on trading,” Mr. Simonet said.

“Our channel-agnostic approach, and especially our online fulfilment capabilities, should assist our ability to continue servicing customer needs despite growing government restrictions on the operation of retail outlets in many countries,” he said.

REA, News Corp’s 61% real estate listing arm, is another company to have withdrawn its earnings guidance for 2020 and on top of that it has halted planned price rises.

The company said in a statement to the ASX that it is also giving customers the ability to re-list and re-upgrade listings on its website for free to help Australians and businesses through the coronavirus pandemic.

REA Group will also delay price changes to its residential business, which were due on July 1, until further notice.

The real-estate listings website has also withdrawn its full-year outlook as ongoing economic uncertainty caused by the outbreak makes it impossible to predict financial performance.

At its half-year results in February, REA Group had said there were signs of a property market recovery.

While that trend has continued, the company said it could not assess the impact of the current market on future residential listing volumes.

The shares dipped a modest 1.7% to $81. The shares are down 29% in the past month. News Corp shares are down 28% in the same period.

Ramsay Healthcare yesterday joined the now list of companies withdrawing full year guidance due to the high level of uncertainty triggered by the march of COVID-19, especially in Europe.

In its December half-year report the company reaffirmed its 2019-20 guidance as “Core EPS growth on a like-for-like basis of 2% to 4%, which corresponds to negative Core EPS of -6% to -4% under the new lease accounting standard AASB16. This guidance is based on Core EBITDAR growth of 8% to 10%, which is unaffected by the new lease standard.”

That’s no longer the case so the shares reacted accordingly – negatively that is – by falling 8.6% to $54.44.
“The rapid spread of COVID-19 in Europe has resulted in decisions to defer surgery in some regions as governments seek extraordinary support from private operators such as Ramsay to deal with capacity requirement,’’ CEO Craig McNally said in a statement yesterday.

He said European governments are asking private operators of hospitals to help in the present crisis and the company stands ready to assist.

“Specific details of the extend of this support including volume, case-mix and reimbursement are still being finalised,’’ the CEO said.

“Ramsay and our facilities right across the world are ready and willing to assist at this time of crisis.”

Non-urgent surgery has been cancelled in France, but the UK’s government has not yet cancelled elective surgery. In Australia some surgery is being fast-tracked, he added.

Ramsay said its Australian hospitals “are also willing to assist the public health sector in each jurisdiction, to ease the surgical burden on the public health system, to undertake urgent and elective surgery, as well as provide capacity to cater for COVID-19 patients if required.”

And poker machine maker Aristocrat also withdrew its 2019-20 earnings guidance yesterday that it gave at its AGM last month citing the impact of the coronavirus on its business.

The company said the statement to the meeting that “Aristocrat plans for continued NPATA growth in the 2020 fiscal year” no long applies and the company will provide further updates as likely impacts become clearer.

“In global land-based markets, softer demand is becoming evident as a number of customers initiate temporary venue closures and adopt a more cautious approach to capital expenditure, the company told the ASX yesterday.

Adding to the pressures on Aristocrat, two of its biggest local customers, casino operators Crown Resorts and The Star Entertainment Group have shut every other poker machine and implemented other social distancing policies in response to the virus while some overseas casinos have shut. That means less use of the machines installed at two group’s casinos and less monitoring and other revenues.

“The health and wellbeing of staff, their families and the broader communities in which we operate remains Aristocrat’s first priority,” the company said in the statement to the ASX.

” In addition to implementing broad travel bans and social distancing measures across our global operations, well over 80% of Aristocrat’s more than 6,400 staff members are currently being supported to work from home, consistent with the advice of local health authorities.”

Aristocrat said it “has a conservatively geared balance sheet, with a net debt to EBITDA ratio of 1.4x (as at 30 September 2019). In addition, Aristocrat’s term loan facility is not due until October 2024 and is covenant-lite, providing significant financial flexibility.”

“The diversity of Aristocrat’s operations adds to the Group’s strength and flexibility. Over the 2019 financial year, Digital games delivered over 40% of total Group revenue, while Land-Based gaming operations and outright sales contributed around another 30% each. Operations are also spread across key global and regional markets, and our Digital and Land-Based businesses are addressing a broader range of segments and genres than ever before,” the company added.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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