August 25, 2008
VIRGIN BLUE faces downward pressure on its share price for weeks as institutional investors who gained a slice of the airline courtesy of Toll Holdings wait for the chance to sell.
The airline's stock tumbled almost 19% to close near an all- time low on Friday, the first day in which Toll Holdings' shareholders could trade the Virgin stock they received after the transport company last month decided to offload most of its 62.7% stake in the carrier.
"Our preference would be not to hold them, but I'm not sure we are going to sell them at 49¢," Argo Investment managing director Rob Patterson said of Virgin shares his company gained via its stake in Toll. "We just have to wait and see."
Macquarie Equities has warned that many Toll shareholders are unlikely to be long-term holders in airlines, suggesting some will dump their Virgin shares.
Mr Patterson agreed that institutional shareholders were unlikely to be "enthusiastic" about holding Virgin shares because the airline sector was highly volatile.
He said there just "so many variables", such as volatile oil prices and slowing passenger growth.
"I just don't think it's what you would call a core holding in an institutional portfolio," he said.
But he doubted fund managers would be selling Virgin — in which billionaire Richard Branson has a 25.5% stake — while it was trading at near all-time lows.
Virgin last week announced a 55% fall in full-year profit to $98 million, due mainly to fuel prices more than doubling over the past year.
Merrill Lynch has forecast Virgin to post a $57 million bottom-line loss this financial year, due in part to the airline spending as much as $65 million on its long-haul carrier, V Australia. Goldman Sachs JBWere has estimated a loss of almost $39 million.
Meanwhile, Deustche Bank analyst Cameron McDonald said he believed it would take at least two weeks for Virgin's share register to stabilise.
Virgin shares lost 58% last week, closing down 11¢ at 48¢ on Friday.
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