Virgin Blue handed boost in bid for Delta tie-up
The Age
Wednesday February 17, 2010
HOT on the heels of Virgin Blue's recent profit upgrade, aviation watchers are seeing positives for the airline from the success of American Airlines and British Airways in winning tentative permission from the US Department of Transportation to deepen their trans-Atlantic alliance, pooling flights into London's Heathrow Airport.Virgin Blue's long-haul offshoot, V Australia, is awaiting a ruling from US authorities on its planned tie-up with Delta Air Lines. Under the proposed deal, which has already received the blessing of the Australian Competition and Consumer Commission, the airlines will co-ordinate on several fronts, including pricing and revenue management, and sales and marketing.Approval for the Delta tie-up is a critical issue for Virgin Blue because V Australia has been haemorrhaging on the Pacific route since it launched services a year ago. A stalemate over the long running BA-American Airlines alliance application had been regarded by many as an impediment to consummation of the proposed Delta-Virgin relationship as the two situations have many shared characteristics.Despite recent progress, investors shouldn't hold their breath. Virgin Blue has previously indicated that any decision from the transport department is not expected until June.More immediately, Virgin Blue shareholders will be looking for an update on senior management succession planning when the company reports half-year results on February 24. Naming a replacement for outgoing chief executive Brett Godfrey has been a long time coming.Value judgmentINCREASING conservatism from banks could yet see property trusts take another tumble. Coming on the back of increased borrowing margins imposed in the past 18 months, one of the big four banks yesterday called meetings with dozens of Sydney CBD property owners to discuss a changed approach for this year's June valuations season.Whereas property owners have previously been allowed to manage the process of appointing valuers, this year the bank will be looking after all appointments for properties worth in excess of $50 million. The days of the friendly valuation may be coming to an end.In further bad news for the sector, industry chatter suggests that banks are looking to cut loan-to-valuation ratios. Last year's 85 per cent LVR may soon be just 65 per cent or lower. Layered on top of more conservative valuations, reduced LVRs would lead to large equity injections being required if assets are to be kept out of the hands of the banks.Elsewhere in the property sector, there are questions emerging regarding the impact on Charter Hall's index membership of the acquisition of Macquarie property fund management rights. With Charter Hall set to significantly increase the proportion of earnings generated from funds management activities, continued inclusion in the REIT index may be brought into question.Seek offers a lessonTHERE were plenty in the market who questioned Seek's corporate strategy when the employment classifieds business started investing in the education and training sector a few years back. The concern was that Seek would lose its edge as a growth stock if it expanded too far beyond the fast-paced internet classifieds arena.Yesterday's half-year result went a long way towards proving the doubters wrong, with unexpectedly strong performance from the education business offsetting tough conditions in employment classifieds to push Seek shares to yearly highs, closing up 44 at $6.99.Seek produced a set of figures demonstrating that well-executed growth in education can support the company's market rating every bit as well as internet classifieds. The Learning business, which places students in online courses and degrees, was able to expand its EBITDA margin to 40 per cent, from 19 per cent in the previous year as Seek achieves scale benefits in the area. Twenty-five new courses have been introduced in recent months.Strong performance from Think (which operates vocational colleges) and Learning was particularly valuable at a time when the core employment classifieds business remained weak. Classifieds EBITDA fell by $14 million, while the education businesses largely plugged the gap with $13 million of EBITDA growth.Seek is a favourite with many analysts, with expectations of strong growth in profitability as labour conditions tighten. With the education and training businesses now providing an additional growth platform, broker price targets are likely to be shifted up on the back of yesterday's result.Cream of the cropWARRNAMBOOL Cheese and Butter, the former dairy co-operative that recently found itself the recipient of an unsolicited takeover approach from Murray Goulburn Co-op, yesterday played the most powerful defence card available €” earnings that make an offer price of $4 a share look too low.Warrnambool has produced a stellar December-half result, aided by an improved global market for dairy products, with EBITDA up more than 100 per cent to $21 million and profit after tax up $7.5 million to $8.9 million.The company has also advised that it recently received improved indicative offer terms from Murray Goulburn, which are being considered by the board. Both bidder and target are tight-lipped on the detail of the revised proposal, although a spokesperson for Murray Goulburn indicated the new offer was a material improvement on the previous proposal, believing it to be "compelling".If the earnings rebound from the smaller Warrnambool business is sustainable, Murray Goulburn will need to have sharpened its pencil considerably for the offer to gain traction with the Warrnambool board and shareholders.dsymons@theage.com.au
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