(A reply to
@hcosah. For some reason the Reply feature aint working)
I think I might have found a slight error in your MC for WEB based on the 20/02 Close. By my reckoning it was $1,833m, not $1,330m (i.e. 135.6m SOI x $13.52 - 20 Feb closing price). Maybe it was a transcription error. However, it means that FLT's MC of $3,992m was only 2.15x MC that of WEB at that time - much closer to the prospective 1.8x you have identified.
I tend to concur with the comments made by
@T_G, above - in particular the fact that FLT's network has vastly more physical real estate tenancies that will need to be managed during the downsizing/"hibernation". It makes my head spin just thinking about it. This is a materially important aspect wrt FLT's operational risks and potential cash burn in the near term, imo.
So, yes, I think there is the distinct possibility of a compression of FLT's MC relative to WEB's in due course. Not to diminish the quality of FLT's management or trash-talk the brand in any way, I think one of the things we might see impacting on FLT is the (currently negative) effect of being so heavily leveraged to foot traffic by having a large network of physical stores that each have tenancy agreements. I understand the strategy, which has generally been a very successful over the years until this black swan event. However, at this particular point in time I think it highlights the potential destructive power of leverage when the underlying forces that had previously been harnessed for positive outcomes (i.e. capturing business via foot traffic) swiftly pivots 180 degrees and races off in the opposite direction. One can only imagine what these poor souls are going through.
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Some further observations addressed to anyone crazy enough to read what follows (fair warning):
In preparing my reply I also discovered a potential anomaly which may,
or not, have an impact on accurately estimating the specifics of the final raising terms that FLT might manage to secure. It centres around the TERP metric, which among other things uses the MC and, by extension, the most recently traded (closing) price as one of its inputs. The 'discovery' was that it dawned on me that WEB's TERP was (rightly) based on its closing price on
18/03 (most recent day of trading), while FLT's most recent closing price which I fed into my FLT TERP calcs was based on the closing price on 19/03 (the day after - FLT eventually halted in mid-afternoon). Under reasonably orderly market conditions this slight timing difference wouldn't be particularly newsworthy,
BUT FLT happened to lose ~1/3 (~$500m!) of its MC on that day alone before trading halted!
On the morning of 19/03 the ASX announced a pause for trading in WEB 6 minutes before the market opened. The trading halt announcement followed ~1/2hr later. FLT continued to trade that day, but panic and rot set in and it wasn't until mid-afternoon that management eventually tripped the circuit-breaker! Quite rightly! I digress...
Where is this discussion heading? Well, maybe, just maybe, the TERP for FLT should be calculated on the 18/03 closing price, before WEB so kindly yanked the rug out from under the travel sector, triggering the already-shaky ground to rapidly liquefy (Christchurch residents know all about that).
Will any of this have
any bearing on anything? Well, if you thought investment markets were entirely rational all of the time, then it should. But we all know that's not necessarily how it works. So, notwithstanding the fact that the anomalous 1/3 drop in MC in FLT which occurred in the few hours it continued to trade after WEB halted should be considered by participants in the decision-marking surrounding pricing of the upcoming raising, it might not. Humans! Aren't we adorable?? (lol)
(I'm not suggesting that TERP is a valuation methodology per se. It's not. But the fact that it's reported means that it does factor (in part) into the decision-making process at some level.)
With all that background drivel out of the way, here is what the numbers for FLT would look like with a TERP that was based on 18/03 closing prices:
$7.20 per new share would represent a
38% discount to the TERP of ~$11.68* (includes the dilution effect). For comparative purposes WEB's discount for this metric was ~32%.
(*A TERP of
$11.68/share = (~
$1,497m MC based on 18/03 closing price + $500m freshly raised cash) / (101m current SOI + 70m new shares issued).)
Yeah, it's quickly becoming a logic-twisting exercise. Imagine a TERP that is higher than the most recent closing price!!! Don't worry, this will over be shortly.
My personal view: TERP is a handy marker, but it's by no means a valuation method. I seriously doubt FLT's roadshow team would try using what I have done here, lest shoes get thrown. My motivation for mentioning it was in the interests of discussing the distortion effects that the remarkable price action of 19/03 has on FLT's TERP metric, that's all.
I should prolly mention now that all my commentary surrounding FLT's impending CR is purely technical in nature and should IN NO WAY be interpreted as me endorsing any kind of price point that is worthwhile for anyone to deploy their financial capital. I don't give advice - especially on potential price moves. I mention it now because it occurred to me that there might be some who think my musings might constitute an endorsement of a given price. That would be a mistake. I am, however, happy to provide general commentary, like my concerns that this thing might last longer than anyone ever anticipated and to not exclude the idea that another round of raisings might be required around year's end. That's tomorrow's topic, however. In the meantime, the markets will soldier-on.
For now, I'm going to stay with my estimate of $5-$6 / new share.
Happy Cabin Fever, everyone.
Z
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Some supporting calcs and basic working notes for those who are interested:
Pre-CR SOI:
FLT: 101.14m shares.
WEB: 135.6m shares.
Closing Prices:
20/02/20 (minor high before run-down market fell out of bed - from the top bunk!):
- FLT: $39.47 (MC: $3,992m - ~2.2x WEB's MC)
- WEB: $13.52 (MC: $1,833m)
18/03/20 (last day both traded before respective halts):
- FLT: $14.80 (MC: $1,497m - now 2.95x WEB's MC, reflecting WEB's more rapid MC decline)
- WEB: $3.76 (MC: $510m)
19/03/20:
- FLT: $9.91 (MC: $1,002m. Having lost 1/3 today(!) FLT's MC now ~2x WEB's MC on yesterday's (most recently traded) Close!
The Sky is Falling! The Sky is Falling! [THUD] lol )
- WEB: HALTED!
NB: Note how the FLT:WEB MC multipliers are jumping around like whack-a-mole?
(20min delay)