The Flight Centre Travel Group Ltd (ASX: FLT) and other travel-related shares have soared in recent weeks. Many investors may think these shares have raced past fair value given current travel restrictions and recession woes. I believe the forward-looking nature of the markets, combined with the unprecedented stimulus, could see the Flight Centre share price and other S&P/ASX 200 Index (ASX: XJO) and All Ordinaries (ASX: XAO) travel shares push higher. 

Lean and cashed-up businesses 

The likes of Flight Centre, Webjet Limited (ASX: WEB) and Corporate Travel Management Ltd (ASX: CTD) reacted quickly to COVID-19. The companies promptly scaled-back capital expenditure, reduced headcount and raised capital to keep business alive. 

Corporate Travel Management has a very capital-light model. Over 70% of its costs are people-related and 50% of the remaining costs are variable. It has a small physical footprint and has the flexibility to hibernate its business. Its pre-COVID-19 business conditions also saw domestic travel account for approximately 60% of group revenues. This may allow the business to benefit from reopening domestic borders. 

Webjet has implemented a broad range of interim business initiatives. These have included the deferral of its $12.2 million dividend payment for 1H20, over 440 redundancies and 4-day working weeks for the majority of its remaining staff. It recently raised a total of $275 million from an institutional placement and entitlement offer. This lifts the company’s cash and cash equivalents position from $58 million to $333 million. 

Likewise, Flight Centre opted to raise $700 million, a significant amount relative to its ~$1.5 billion market capitalisation back in April. But instead of the share price continuing to slump post-capital raise, Flight Centre is not far off doubling from its March lows and it’s up more than 28% in June alone. 

A slow recovery on the cards 

Webjet commented on China’s early signs of normalisation with hotel bookings leading into March surging 40% from the previous week. Peak daily bookings for domestic flights also soared 230% from the lowest level recorded in February. 

The Sydney Morning Herald reported that Qantas Airways Limited (ASX: QAN) “is preparing to scale up its domestic flying from its current 5 per cent of pre-pandemic levels to 40 per cent by the end of July, pending the reopening of state borders.”

Qantas CEO, Alan Joyce has also suggested there is pent-up demand for travel and the airline had already experienced a surge in intrastate bookings. 

This all spells good news for the Flight Centre share price and travel-related cohorts. I believe the market has largely priced-in the negative economic impact of the coronavirus. The travel industry recovery is imminent and consumers are eager for more than just crowded shopping centres and long queues. 

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Motley Fool contributor Lina Lim has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Corporate Travel Management Limited and Webjet Ltd. The Motley Fool Australia has recommended Flight Centre Travel Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The CSL Limited (ASX: CSL) share price has continued its poor form and has been unable to climb higher with the market on Tuesday.

This is even after the release of a promising announcement this morning.

At the time of writing the biotherapeutics company’s shares are down 2.5% to $277.99.

What did CSL announce?

This morning CSL announced that it has agreed to exercise its right to acquire clinical-stage biotechnology company Vitaeris.

Vitaeris is currently focused on the phase 3 development of a treatment for rejection in solid organ kidney transplant patients.

Both companies entered into a strategic partnership in 2017 to speed up the development of this program. This partnership included the option for CSL to acquire Vitaeris in full at a later date.

It has now exercised this option, which means Vitaeris’ research assets will now join CSL842 and CSL964 as part of CSL’s portfolio of products in late-stage development to address significant unmet needs in the transplant community.

What is Vitaeris’ treatment?

According to the release, Vitaeris’ lead phase 3 program is investigating the role that a monoclonal antibody called clazakizumab has in treating a naturally occurring inflammatory gene (interleukin6 or IL-6).

This inflammatory gene is the leading cause of long-term rejection in kidney transplant recipients.

CSL’s Executive Vice President and Head of Research and Development, Bill Mezzanotte, spoke positively about the acquisition.

He said: “Clazakizumab has been a promising monoclonal antibody in the Transplant therapeutic area since we started working with Vitaeris several years ago.”

“Acquiring Vitaeris and their associate expertise helps us to continue to grow our strategic scientific platform of recombinant proteins and antibodies. We look forward to continuing to advance this treatment candidate as a potential option for people experiencing rejection, an area where current treatment options for transplant recipients are limited, at best,” he added.

What now?

CSL notes that the cost of acquisition is modest and does not materially change its profit expectation for FY 2020.

The terms of agreement include sales-based milestones and the company will incur additional research and development expenses. These are associated with the completion of the phase 3 clinical trial.

In FY 2021, these additional expenses are estimated to be between US$30 million to US$50 million. While this might seem like a large expense, it isn’t in comparison to its overall research and development spend.

CSL traditionally spends in the region of 11% to 12% of sales on research and development activities. This led to the company pumping US$832 million into these activities in FY 2019.

More reading

• ASX 200 jumps 2.5%: Big four banks surge higher, CSL announces an acquisition
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• 2 ASX 200 biotech shares to consider buying today
• ASX 200 Weekly Wrap: ASX bulls crash through 6,000 points
• ASX shares could be the best way to grow your wealth in 2020

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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