One of the hardest-hit sectors on the ASX amid COVID-19 is aviation shares. Australia is carefully opening up the economy. However, the rest of the world is still in crisis. 

Bleak outlook for ASX aviation shares

One high profile company to be impacted is Qantas Airways Limited (ASX: QAN). Qantas has seen a dispute with Perth Airport erupt at the same time its flights have dropped to near zero. This has resulted in Qantas receiving termination notices. Even without this conflict, the airline faces near-term uncertainty. Nevertheless, if the terminations are carried out, the entire airline industry could alter. 

Sydney Airport Holdings Pty Ltd (ASX: SYD) is another high-profile casualty. This airport has seen domestic passengers reduce by 97.4%, while international passengers dropped by 96.1% in the first 16 days of April. Domestic flights and trans-Tasman flights to New Zealand appear possible in the near term. This will provide some income for Sydney Airport. However, it is still a long way from its performance in January.

Air New Zealand Limited (ASX: AIZ) has seen its share price fall by 59% year-to-date. Air New Zealand is a far smaller company than Qantas and Sydney Airport by market capitalisation. As such, it requires less volume to regain momentum. However, the limited flights across the Tasman sea or domestically within New Zealand are still a long way from its usual international traffic. 

The safe haven

Alliance Aviation Services Ltd (ASX: AQZ) is a small-cap ASX aviation share. It operates a number of “wet lease” services for Virgin Australia Holdings Limited (ASX: VAH) which has impacted its revenues. However, the core of its work comes from fly-in fly-out operations for the nation’s resources sectors. All of these flights are continuing.

Mining and oil and gas companies are the hardened core of our economy. They are responsible for our recent trade surplus and are essential to our short-term survival. Throughout Australia, these companies have made significant changes to adapt to COVID-19. Social distancing within aircraft means reduced passengers per flight and is likely to see an increase in overall flights.

On 1 May, Alliance announced a new 10-year airline services contract with South32 Ltd (ASX: S32) for the Cannington and Groote Eylandt (GEMCO) mine sites, further cementing its reputation as a provider of choice for fly-in fly-out operations. In fact, Alliance does not even operate from Sydney airport, preferring to service regional centres and smaller airports. 

I believe that no matter what happens from this point forward, there is little chance Alliance will see any reduction in its fly-in fly-out operations.

Foolish takeaway

While there is a reduction in wet lease flights on behalf of Virgin Airlines, Alliance has been able to maintain its momentum through its focus on fly-in fly-out operations. In fact, it is likely to see flights increase to cater for social distancing in distance commuting. As intra-state travel begins to open up, I believe Alliance will see its revenues come back before the large players in the field.

If the feud between Perth Airport and Qantas escalates further, it may gain further market share.

More reading

• These ASX 200 shares saw the biggest falls last week
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• 3 ASX 200 shares to buy before the market rebounds
• 3 ASX dividend shares for income investors to buy next week
• These were the worst performing ASX 200 shares last week

Motley Fool contributor Daryl Mather 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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The REA Group Limited (ASX: REA) share price has risen very strongly by 53% since the ASX started to see the beginning of a market rebound on 23 March.

In comparison, the S&P/ASX 200 Index (ASX: XJO) has only risen by 19% during that time.

Has the buying opportunity passed for investors wishing to take a stake in Australia’s largest online real estate portal?

Solid third-quarter results

The market reacted very positively to REA Group’s third-quarter results for FY 2020. This was released to the market last Friday morning, with a very strong 7.7% share price rise seen on the day.

Despite the very tough trading conditions caused by the coronavirus crisis, REA Group still managed to deliver a 1% increase in revenue to $199.8 million and an 8% lift in earnings before interest, tax, depreciation and amortisation (EBITDA). While national residential listings declined 7% for the quarter, they were actually up in Melbourne by 6% and in Sydney by 5%.

Considering the devastating impact that the coronavirus crisis has had on our property market, with property open for inspections and auctions virtually coming to a halt, I think that this was actually quite a strong result. So I am not surprised that the market reacted so favourably.

Property inspections and on-site auctions begin to reopen

Already there are signs of the beginning of a residential property market recovery, and investors appear to be encouraged by the release of the Federal Government’s 3-step plan to reopen Australia last Friday. This plan aims to see the majority of Australian businesses re-opened by the end of July.

As part of this plan, NSW agents and vendors began traditional property inspections and on-site auctions last weekend after a 6-week limited shutdown due to the coronavirus.

Is it too late to invest in REA shares?

Despite the recent rally in the REA Group share price, I don’t believe it is too late for investors with a long-term investment horizon to purchase shares. REA Group shares closed on Friday at $95.17, which is still well below its peak in February of $117.30. I believe there is still potential for more upward movement in its share price, as the further opening up of the nationwide property market in the months ahead is likely to lead to increased property listings.

I also believe that the long-term outlook for REA Group still looks bright due to the fast-growing Australian residential property market, driven by overseas migration. In addition, REA Group looks set to capitalise over the next few years on its growing international business divisions. In my view, this places it in a better position than its main rival in Australia, Domain Holdings Australia Ltd (ASX: DHG), which only has a local presence.

More reading

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• These ASX 200 shares are up over 1,000% in just 3 years
• ASX 200 Weekly Wrap: New ASX bull run continues

Motley Fool contributor Phil Harpur owns shares of REA Group Limited. The Motley Fool Australia has recommended REA 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 REA Group shares are up 53% since late March. Is it too late to invest? appeared first on Motley Fool Australia.

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The Cochlear Limited (ASX: COH) share price is edging lower after providing an update this morning.

At the time of writing the hearing solutions company’s shares are down slightly to $181.22.

What did Cochlear announce?

This morning Cochlear released an update on the tough trading conditions it is facing because of the pandemic.

According to the release, as was forewarned in March, the company has experienced a substantial, temporary negative impact on cochlear implant surgeries in the US and Western Europe as hospitals prioritise their COVID-19 responses.

During the month of April, sales revenue across the business fell by ~60% on the prior corresponding period. The sales of cochlear and acoustic implants were the most severely affected.

Cochlear implant unit sales declined by ~80% across developed markets, with most elective surgeries postponed across the US and Western Europe. In addition to this, the company notes that many ear, nose, throat (ENT) surgeons have been diverted to help treat COVID-19 patients.

Positively, in China things are recovering quickly. Surgeries recommenced in late February and continued to recover throughout April.

As a result, surgeries are now running close to pre-virus run rates despite Beijing, the largest surgery centre, remaining largely closed to elective surgery. Though, the majority of cochlear implants in China are for children.

Also being impacted by the pandemic is the Services business, which represents around 30% of business-as-usual revenue. Its sales declined by ~30% during the month of April.

Management advised that while many recipients have been able to access sound processor upgrades remotely, clinic closures have delayed access for other users.

In light of these sales declines, Cochlear is currently cash flow negative and expects to continue being so for the coming months.

However, thanks to its recent capital raising, an increase in its debt facilities, and its cost cutting, management believes its liquidity position is strong enough to navigate these tough times.

Outlook.

Management expects the immediate term to be tough for the company but remains very positive on its long term outlook.

CEO & President, Dig Howitt said, “Longer-term, there remains a significant, unmet and addressable clinical need for cochlear and acoustic implants that is expected to continue to underpin the long-term sustainable growth of the business. Following the capital raising and expansion of debt facilities, we have strengthened our balance sheet and liquidity position, which enables the business to weather the expected temporary decline in demand caused by COVID-19, while continuing to progress the R&D pipeline.”

More reading

• 3 top ASX 200 shares to buy right now
• 2 blue chip ASX healthcare shares to buy right now
• Here are all the ASX 200 companies that have announced capital raisings so far in 2020
• 3 small cap ASX healthcare shares with enormous potential
• Broker calls time on this top performing ASX healthcare stock

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 Cochlear Ltd. The Motley Fool Australia has recommended Cochlear 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 market closed higher last week on hopes of an imminent easing in coronavirus restrictions. The S&P/ASX 200 Index (ASX: XJO) finished the week up 2.78% as Scott Morrison announced a staged reopening of the economy. 

Treasury has estimated the coronavirus shutdown is costing the economy $4 billion a week. The economic hit is due to a combination of unemployment, productivity loss, and a drop in consumption. 

The unemployment rate is predicted to hit 10% by June. But a recovery in GDP growth is expected by the end of the year, limiting the fall in GDP to 6% over 2020. Unemployment is predicted to improve slightly to 9% by the end of the year. 

Market conditions remain challenging given COVID-19 uncertainty and the unknown speed of recovery. Nonetheless, ASX travel shares soared as Morrison announced “some” interstate travel would be permissible under stage 2 of the 3-step plan to reopen the economy.

If all goes well under Morrison’s 3-step plan, 850,000 people will be back in work and around $9 billion pumped into the economy in about 8 weeks’ time. As restrictions ease, we take a look at the ASX 200 shares that fell the most last week. 

Inghams Group Ltd (ASX: ING)

Shares in Inghams Group fell 6.5% last week to close the week at $3.19. Last Monday, Inghams refused to draw conclusions around FY20 trading results given changes in volume and channel mix.

COVID-19 restrictions have had an impact on the food supply chain, and there have been volatile conditions in poultry markets. Inghams had to swiftly realign its operations to manage social distancing requirements at its facilities. This has created additional inefficiencies and costs and led to the suspended production of some products. 

COVID-19 restrictions caused a temporary surge in retail sales in March and early April but since then, store traffic has decreased and shopping behaviours shifted. Out of home consumption of poultry products has been negatively impacted. Customers supplying hospitality and tourism industries have significantly reduced purchases, leading to weaker conditions in wholesale markets. 

Inghams is closely managing its working capital and inventory, and remains focused on debtors and cashflow collection. In some circumstances where customers have experienced difficulties, Inghams is working to support them. The company is supported by its lenders and has significant headroom in its covenants. 

Orocobre Limited (ASX: ORE)

Orocobre shares ended last week 6.5% lower at $2.03. Its Olaroz lithium facility stopped production during the March quarter due to Argentinian COVID-19 restrictions. The shutdown, combined with planned maintenance, resulted in 21 days of lost production. 

Production for the quarter was down 11% on the prior corresponding period due to the shutdown. March quarter product pricing was also below that of the December quarter with continuing weak demand and aggressive competitor behaviour. Sales revenue was down 32% QoQ to US$12.1 million.

The existing challenges in the lithium market were compounded by the spread of COVID-19 which impacted operations throughout the supply chain. Future demand rests on increased appetite for electric vehicles, with Orocobre confident in its long-term prospects given government emission targets and European carbon emissions penalties. 

Alumina Limited (ASX: AWC)

Shares in Alumina lost 6.2% last week, finishing the week at $1.525. The price of aluminium has declined 17.7% since the beginning of 2020, and is expected to decline further over the next 12 months. 

In the March quarter, Alumina reduced cash costs of production by $1 per tonne. Daily production was in line with that of the previous quarter. The average realised alumina price was also broadly in line with the previous quarter despite a decline in the spot price towards the end of the quarter. 

To preserve cash in the current environment, Alumina has put growth capital expenditure on hold for the rest of 2020. This will reduce spending by $30 million, with Alumina looking to save a similar amount on non-critical sustaining capital expenditure. 

Qantas Airways Limited (ASX: QAN)

Qantas shares closed last week down 6.1% at 3.40. A dispute with Perth airport over alleged unpaid aviation and rental fees has led to the airport issuing Qantas with termination notices. Qantas said the notices amounted to eviction notices and could result in operations at the airport stopping within a fortnight. 

“We understand Qantas needs to keep trading and that the significant profits it is generating from these lucrative FIFO flights are crucial to them,” Perth Airport Chief Executive Kevin Brown told the Sydney Morning Herald. “But paying nothing while using all of the airport’s services is no longer an option.”

Qantas has struck deals with most airports around Australia and is in negotiations with others. Perth Airport is the exception. Qantas is currently operating around 350 services a week through Perth airport, most headed to Western Australian resource projects. 

National Storage REIT (ASX: NSR)

The National Storage REIT finished last week down 5.9% at $1.59. National Storage announced a $330 million equity raising during the week. A $300 million placement was conducted at $1.57 per stapled security, which was a 7.1% discount to the last closing price. A further $30 million will be raised under a security purchase plan. 

Proceeds from the raising will be used to strengthen the balance sheet, replenish investment capacity and provide additional funding flexibility. National Storage says it has $120 million of acquisition and development opportunities under active consideration. 

Self-storage markets in Australia and New Zealand are fragmented. National Storage believes the COVID-19 pandemic may provide additional acquisition opportunities over the next 12 to 18 months. With strengthened liquidity as a result of the capital raising, National Storage says it will be in a strong position to capitalise on these opportunities.

More reading

• REA Group shares are up 53% since late March. Is it too late to invest?
• These ASX shares booked the biggest gains last week
• Is Santos the best ASX 200 energy share?
• These ASX 200 shares are up over 1,000% in just 3 years
• ASX 200 Weekly Wrap: New ASX bull run continues

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 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 homegrown investment bank is not regarded as a competitor to Commonwealth Bank of Australia (ASX: CBA) before, but that may be about to change.

I am not talking about Macquarie Group Ltd (ASX: MQG) vying to overtake CBA in home loans or market cap. CBA’s position in both these fronts look unassailable.

But I am referring to the hearts and minds of investors. CBA dominated investor perception of what is a high-quality financial institution for so long, and some of this gloss is wearing off.

CBA’s leadership losing its shine

CBA commands a market premium as it’s the undisputed leader when it comes to these revered qualities. This is also why mum and dad investors are fiercely loyal shareholders that are hooked in its dividends.

I am not suggesting for a moment that CBA isn’t a quality institution. But Australia’s largest home lender’s reputation could take a hit this Wednesday when it releases its quarterly update.

This will stand in contrast to Macquarie’s full year results unveiled on Friday that triggered a 6% jump in the Macquarie share price to a two-month high of $105.19.

This is despite the investment bank posting an 8% drop in FY20 profit, the halving of the dividend and withdrawing of its profit guidance.

Macquarie vs. big banks

But the profit outlook for the big four domestic banks makes Macquarie’s “bad” news look delectably good!

The three big banks turned in big double-digit profit crashes in the first half. Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking Group (ASX: ANZ) even went as far as suspending their dividends.

Meanwhile, National Australia Bank Ltd (ASX: NAB) slashed its interim dividend by more than two-thirds to 30 cents a share while pleading with investors to provide a $3.5 billion in extra cash via its cap raise.

Talk about a reverse capital return – big bank style!

Better protected

Further, Macquarie’s provisioning of a little over $1 billion is modest compared with what the big banks have to set aside for bad debts amid the COVID-19 pandemic.

CBA is tipped to announce total provisioning of $3 billion this week and a significant fall in quarterly cash profit that will make Macquarie look like the king of the banking hill.

Macquarie isn’t seen to be a direct rival to other ASX Australian banks as its income mix is different, even though it’s aggressively moved into home lending recently.

Foolish takeaway

The bank’s commercial lending and asset management business helped buoy its results with a 12% increase over FY19, while its commodities, markets and capital divisions, took a 29% profit hit.

While Macquarie isn’t immune to the coronavirus economic fallout, its better spread of income, which also includes offshore operations, means it may hold up better than our domestic banks.

For these reasons, some of the premium gloss from CBA could well rub-off on Macquarie – at least for the interim.

More reading

• ASX 200 Weekly Wrap: New ASX bull run continues
• 3 top ASX dividend shares to buy right now
• 5 things to watch on the ASX 200 on Monday
• Which is the cheapest ASX bank stock on the market?
• What to watch on the ASX 200 next week

Motley Fool contributor Brendon Lau owns shares of Australia & New Zealand Banking Group Limited, Commonwealth Bank of Australia, Macquarie Group Limited, National Australia Bank Limited, and Westpac Banking. Connect with me on Twitter @brenlau.

The Motley Fool Australia owns shares of and has recommended Macquarie 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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