Despite some relaxation of coronavirus restrictions, travel remains largely off the cards. This is impacting the ASX travel shares, which have seen mixed recoveries since the market meltdown in March. 

Borders were closed in late March in an effort to combat coronavirus. According to the Australian Bureau of Statistics (ABC), overseas arrivals in March fell 60%, with just 331,900 short term visitors arriving in Australia. Overseas arrivals to Australia collapsed in April following the border closures, with ABS data revealing that overseas visitors decreased 99.3% to just 2,200 trips (compared to March). The Australian tourism industry, which was already hurting from the summer bushfires, began to sustain heavy economic damage. 

ASX travel shares fell out of favour with investors in late February as the scope of the pandemic became clearer. While there is hope Australians will be able to travel between states in the coming weeks, international travel may be off the cards until next year. Some estimate it may take up to 3 years for international travel to return to pre-COVID levels.

With this in mind, we take a look at how the ASX travel shares are travelling. 

Corporate Travel Management Ltd (ASX: CTD)

The Corporate Travel Management share price has bounced over 160% from its March low, but remains 44% down from its 2020 high. The travel agent is one of the few that has not yet raised capital to shore up the liquidity. 

Corporate Travel benefits from its business  model in which a high proportion of costs are variable. With a small physical footprint, the business saves on rent with about 70% of costs people-related. This enabled a swift resizing of the business. 

When the crisis hit, Corporate Travel Management embarked on a comprehensive cost reduction program. The company’s cost base has been reduced to $10–$12 million a month, down from $27–$27 million a month. This has been achieved through a combination of retrenchment, temporary stand downs, government initiatives such as JobKeeper, the elimination of non-essential expenditure and reduced capex. 

Domestic travel restrictions are likely to ease prior to international restrictions. This will benefit Corporate Travel, which is leveraged to the domestic market – about 60% of its total transaction volumes are domestic in nature. Domestic activity is highly profitable for Corporate Travel, particularly in Australia/New Zealand and Europe. 

Corporate Travel Management is positioning itself for a domestic recovery. It says it has the ability to operate a high performing domestic only business with a reduced cost base until international recovers. Staff capacity in each region is ready to be deployed back to full time as required. 

Flight Centre Travel Group Ltd (ASX: FLT)

The Flight Centre share price is up 55% from its March low but remains down 65% from 2020 highs. The travel operator closed stores and raised emergency funds in the wake of the pandemic. It raised $700 million in equity to provide liquidity during the coronavirus crisis. 

Flight Centre is aiming to reduce its cost base to $65 million per month by the end of July 2020. Prior to COVID-19, the cost base was around $226 million a month. CEO Graham Turner says the equity raising and cost saving initiatives will enable Flight Centre to trade through the current period of global disruption to the travel industry. 

To reduce costs by 70%, Flight Centre is closing half its stores and reducing its workforce. The cost saving measures will themselves cost the company $210 million in redundancies, lease breakages and the like. 

Travel shutdowns meant Flight Centre’s total transaction value fell to a low of 20% of normal levels in March. Uncertainty around how long travel restrictions will remain in place means Flight Centre will want a buffer of funds to protect its business in the interim. 

The equity raising and additional funding lines give Flight Centre around $1.6 billion in additional liquidity. This should fund the company well into 2021 with minimal revenues before a significant uplift in business will be required. 

Qantas Airways Limited (ASX: QAN)

The Qantas share price has risen 107% from its March low but remains nearly 40% down from its earlier highs. The airline has extended flight cancellations from May through to the end of July. Capacity can be added back if domestic and Trans-Tasman restrictions ease. 

Qantas raised $1.05 billion in debt funding secured against seven Boeing 787-9s in March. It has now secured an additional $550 million in funding secured against three wholly owned 787-9s. Net debt is $5.8 billion, which is in the middle of the airline’s target range. Qantas has no financial covenants on its debt facilities and no significant debt maturities until June 2021. 

Qantas says it has sufficient liquidity to respond to a range of recovery scenarios, including where conditions persist until December 2021. It also has $2.7 billion in unencumbered aircraft assets and can raise funds against these if required. 

Qantas acted quickly to slow cash burn early in the crisis. This was achieved through employee stand downs, revised agreements with suppliers, and pauses on virtually all capital and operating expenditures based on current conditions, Qantas expects to reach a net cash burn rate of $40 million per week by the end of June 2020. 

The airline is currently operating around 5% of its pre-crisis domestic passenger network and 1% of its international network. 

Regional Express Holdings Ltd (ASX: REX)

Regional Express Holdings shares are trading on par with levels pre-coronavirus. Shares in the airline operator were boosted by speculation it could start flying between capital cities. This would see Regional Express compete with Qantas and Virgin Australia. 

Regional Express said it is considering the feasibility of commencing domestic airline operations. This would involve flying between capital cities and not just to them. The airline has been approached by several parties interested in providing the equity needed for it to start regional operations in Australia. 

The airline estimates it would need $200 million to expand its operations. According to the Australian Financial Review (AFR), the business plan would involve leasing 10 narrow-bodied jets. With airlines globally struggling due to the travel downturn, Regional Express should be able to access aircraft at distressed prices. 

With a sufficient capital injection, the Regional Express board believes, “there is a confluence of circumstances which render the start of domestic operations by Rex to be a particularly compelling proposition.” If the board decides to proceed with the expansion, domestic operations are expected to commence on 1 March 2021. 

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Motley Fool contributor Kate O’Brien has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Corporate Travel Management Limited. 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.

The post What’s next for these 4 ASX travel shares? appeared first on Motley Fool Australia.

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A surprising success story to come out of these uncertain economic times is the rise of ASX online homewares and furniture retailer, Temple & Webster Group Ltd (ASX: TPW). Despite falling to almost $1.50 during in late March, shares in the company have now surged back up well over $5. This means they’ve gained almost 100% so far this year.

This share price performance is especially impressive when compared to more established competitors in the homewares space. Competitors like Harvey Norman Holdings Limited (ASX: HVN) and Myer Holdings Limited (ASX: MYR). Both companies have lost significant ground this year. The Harvey Norman share price is down 12% in 2020, while for embattled Myer, the loss is closer to 50%. Even the share price of ASX retail darling JB Hi-Fi Limited (ASX: JBH) is only up around 7% this year.

In a business update released to the market on Thursday, Temple & Webster reported year-to-date May revenues of $151.7 million. This is an increase of 68% over the prior comparative period. That strong momentum doesn’t seem to be letting up with the company declaring revenue for the month of June 2020 on track to double that of June 2019.

What is the secret behind Temple & Webster’s success?

Temple & Webster operates an online drop shipping business with no physical furniture showrooms. This business model meant that it was uniquely positioned to succeed during even the worst of the coronavirus. Operationally, the company was able to transition to remote working arrangements far more easily than its rivals. It also proved itself to be more adept at meeting the needs of consumers during the pandemic.

With many retailers closing their doors and the population forced to stay home, consumers moved to shop online. At the same time, demand for home furniture and other homewares spiked. Naturally, with people spending more time indoors, they were purchasing products to improve their homes and make their lives in lockdown more comfortable. Additionally, those working from home purchased home office furniture and other accessories.

In many ways, it makes sense that Temple & Webster outperformed competitors in this market. The lockdowns hit large brick and mortar retailers like Myer and Harvey Norman the hardest. In these uncertain times, the costs involved in maintaining a physical retail presence can drag on a company’s already shrinking profits. The market is clearly viewing growing digital companies operating off a lower cost base to be safer bets in the current climate.

Should you invest?

Given the surge in Temple & Webster’s share price over the last few months, now might not be the best time to buy. This is especially when the economic forecast is for rocky conditions ahead. However, Temple & Webster should definitely be one to add to your watchlists as a potential long-term growth opportunity.

Even as retail stores open up, the coronavirus crisis could have forced a permanent change in the way people shop. Consumers who may have never shopped online for homewares and furniture before have been doing so for the first time. And while that is bad news for malls and local shopping precincts, it’s great for e-commerce.

This could precipitate a radical reshuffling of the retail market share away from the traditional big players and towards the next generation of newcomers like Temple & Webster.

More reading

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Rhys Brock has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Temple & Webster Group Ltd. The Motley Fool Australia has recommended Temple & Webster Group Ltd. 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 Cardinal Resources Ltd (ASX: CDV) share price is flying higher today following news that a subsidiary of China’s largest gold producer is making a play for the ASX miner.

Cardinal Resources is a gold-focused exploration and development company that holds interests in tenements within Ghana, West Africa.

What’s the deal?

This morning, Cardinal announced a takeover bid from Shandong Gold at an offer price of 60 cents per share, valuing the company at around $300 million. This represents a 29% premium to Cardinal’s last closing price of 46.5 cents, and a 31.1% premium to a takeover proposal from Nord Gold SE announced in March.

The offer from Shandong Gold is subject to certain conditions, including 50.1% minimum acceptance by Cardinal shareholders and regulatory approval. On the regulatory front, Shandong Gold will need to obtain approval from the Foreign Investment Review Board, along with various regulatory bodies from the People’s Republic of China.

Cardinal’s board are in favour of Shandong Gold’s offer, recommending that all Cardinal shareholders accept the offer in the absence of a superior proposal.

“The Board of Directors of Cardinal has negotiated what we consider a strong offer for our shareholders and one which delivers a significant premium to Cardinal’s market price, at a time of considerable volatility and uncertainty in global markets,” said chief executive Archie Koimtsidis.

Interim financing

In conjunction with the transaction, Shandong Gold has also agreed to provide Cardinal with interim funding of $11.96 million by way of a placement. In the absence of a competing proposal, the placement will be completed at an issue price of 46 cents per share and is not subject to shareholder approval.

The funds will be used to ensure Cardinal continues advancing the Namdini Project towards development. Namdini is a gold project located in Ghana which has a published ore reserve of 5.1 million ounces.

At the time of writing, the Cardinal Resources share price has soared 27.31% to 59.2 cents after rallying as much as 31% in early trade.

More reading

• Australian retail sales up 16.3% in May
• What’s next for these 4 ASX travel shares?
• Temple & Webster shares continue to grow despite coronavirus restrictions
• 3 ASX shares I think are super cheap right now
• Grow your wealth with these 3 ASX fintech shares

Motley Fool contributor Cathryn Goh has no position in any of the stocks mentioned. 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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