Morningstar Investor users sign in here.


Earnings wrap: Coronavirus strikes again, travel stocks in the crossfire

Sydney Airport, Auckland Airport and Qantas have been jostled by the outbreak, but analysts remain upbeat for the future.

Mentioned: Auckland International Airport Ltd (AIA), Air New Zealand Ltd (AIZ), Flight Centre Travel Group Ltd (FLT), Qantas Airways Ltd (QAN), Webjet Ltd (WEB)

This week China sneezed - again - and Australian listed companies are bed-ridden.

Investors ran for safety after a surge in coronavirus cases outside China fanned fears of a pandemic and sparked a sell-off in global markets. All sectors of the local market closed in negative territory.

Among the hardest hit are companies tied to the health of the global travel industry. Reporting Thursday, Auckland International Airport Limited (ASX: AIA), Qantas Airways Limited (ASX: QAN) and Sydney Airport Holdings Pty Ltd (ASX: SYD) all warned of near-term challenges stemming from the coronavirus outbreak.

Short-term turbulence at Sydney Airport

For narrow-moat Sydney Airport, first it was the bushfire crisis. Now it's the coronavirus. Australia's busiest airport can't seem to catch a break.

The company posted a full-year after-tax net profit of $215 million, down from $371 million. It recorded revenue growth of 3.5 per cent for the year, slightly below Morningstar regional direct of equity research Adam Fleck's 4.3 per cent forecast. The chief cause was a lower mix of international traffic than anticipated. Car parking revenue was also lower, but retail revenue higher.

Fleck is warning investors to expect near-term challenges for Sydney Airport because of the virus. He has reduced his outlook for 2020 to account for lower international traffic growth and the flow-on effects to passenger fees and retail spending.

"We now forecast a 1 per cent drop in international passengers for 2020 versus our prior projection for 4 per cent growth. This flows through to a 3 per cent reduction in estimated EBITDA for the year," he says.

But Fleck expects passenger traffic to rebound in the second half as was the case in the wake of the SARS outbreak in 2003.

Today, Sydney Airport screens as overvalued, trading at an 8 per cent premium to Fleck's revised $7.60 fair value estimate.

His long-term forecasts are unchanged by the outbreak. "We still expect passenger traffic will grow at 2.5 per cent annually over the next decade, supporting our outlook for 7 per cent yearly EBITDA gains," he says.

"But we caution that distributions will likely grow at a slower 4 per cent rate, owing to Sydney Airport becoming a cash taxpayer in fiscal 2022."

The group declared a 19.5 cents per security distribution in the period, bringing the full-year payout to 39 cents.

Qantas earnings suffer

The coronavirus outbreak is also weighing on Qantas's earnings. Morningstar's Angus Hewitt warns that the airline's near-term outlook may be soft.

Underlying profit before tax for the first half of fiscal 2020 remained virtually flat compared with the prior corresponding period at $771 million.

"The coronavirus is weighing on earnings," Hewitt says in a note co-authored with equity analyst Gareth James. "Management expects an impact of between $100 million to $150 million from the virus as weaker demand both domestically and internationally is only partially offset by fuel savings.

"We expect the firm to temporarily reduce capacity accordingly, particularly on Asian routes, where management intend to constrain Qantas and Jetstar capacity in the second half by 16 per cent and 14 per cent."

Hewitt expects domestic demand to remain soft over fiscal 2020, and that it will pick up again from fiscal 2021.

At 3.20pm on Tuesday, Qantas was down 1.25 per cent at $5.94. It is screening as overvalued at a 20 per cent premium to the $5.00 fair value estimate.


Fleck is warning investors to expect near-term challenges for Sydney Airport.

Qantas also announced another off-market share buyback--this time for $150 million. Hewitt says this may be an attractive option for some investors looking to tap out.

"Some shareholders could benefit from participating," he says. "Generally, low-tax threshold entities including superfunds likely stand to do best.

"But there are many moving parts to tax-effective buybacks and we recommend shareholders carefully review the buyback booklet and consult their financial adviser or tax accountant on whether to participate."

The Qantas buyback is open until 8 May 2020 to those who held shares up to the ex-entitlement date 2 March 2020.

Fewer punters at Auckland Airport

Passenger traffic at Auckland Airport is similarly enduring a rough patch, says Fleck.

"Auckland Airport’s passenger traffic in the first half of fiscal 2020 trails our full-year expectations, and coronavirus travel restrictions are likely to further weigh on results over the next six months."

From June through December 2019, international and transit passenger movements were flat versus the prior corresponding period, with China-sourced inbound traffic particularly weak. Domestic traffic fell 1.2 per cent, largely due to Jetstar cutting back on its New Zealand routes.

Fleck is encouraged that retail revenue per passenger continued to climb in the period. But he says rising operating expenses and the challenging near-term environment has forced him to reduce his full-year NPAT forecast to NZ$263 million from NZ$275 million. This is at the low end of management’s updated guidance range of NZ$260-NZ$270 million, down from NZ$265-NZ$275.

Auckland Airport declared an NZ$11 cents per share dividend, in line with Morningstar's full-year forecast. At the current price, the stock’s yield is only about 2.5 per cent.

Shares continue to screen as overvalued versus Fleck's NZ$7.40 fair value estimate, trading at a 12 per cent premium.

Final week

Flight Centre Travel Group Ltd (ASX: FLT) and air passenger and cargo transport services company Air New Zealand Limited (ASX: AIZ) are both due to report on Thursday.

AIZ released an updated guidance yesterday and estimated the impact of the coronavirus on earnings. Management intends to cut capacity across the board, and subject to several assumptions, are now guiding to fiscal 2020 profit before tax, of between NZ$300 million and NZ$350 million. This compares with previous guidance of NZ$350 million to NZ$450 million.

Hewitt has lowered Morningstar's fair value for the company to NZ$2.50 from NZ$2.60 and expects Air New Zealand to temporarily reduce capacity accordingly, particularly on its Asian routes.

Online travel company Webjet (ASX: WEB), which is not covered by Morningstar analysts, was down by about 6 per cent on Tuesday.

Morningstar has compiled a handy list of more than 150 companies under coverage that will release earnings results during February Reporting Season.

© 2023 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This report has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or New Zealand wholesale clients of Morningstar Research Ltd, subsidiaries of Morningstar, Inc. Any general advice has been provided without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide at You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Morningstar’s full research reports are the source of any Morningstar Ratings and are available from Morningstar or your adviser. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782.

More from Morningstar

7 charts on the AI stock boom one year after ChatGPT’s launch

7 charts on the AI stock boom one year after ChatGPT’s launch

These stocks and the key trends behind them are critical for understanding the AI investment landscape.
Why Berkshire Hathaway’s success will continue after Charlie Munger ... and Warren Buffett

Why Berkshire Hathaway’s success will continue after Charlie Munger ... and Warren Buffett

Munger’s passing is a spiritual loss for the company.
Morningstar initiates coverage on 3 new shares

Morningstar initiates coverage on 3 new shares

There are 2 undervalued names as part of our new coverage. 
3 shares for income investors

3 shares for income investors

A dividend screen is a jumping off point for further research.
What we think of Morningstar subscribers' most traded share

What we think of Morningstar subscribers' most traded share

This stock was the second largest ‘buy’ for 2023 and was also the second largest ‘sell’ for Morningstar subscribers.
How to build an income portfolio

How to build an income portfolio

Investors love dividends but creating an income stream involves more than just picking the highest yielding shares.