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Reporting season

We're in the second week of reporting season and it's been a mixed bag of results.
Investing 101

We’re in the second week of reporting season and it’s been a mixed bag of results. Some good, some not so good. There has however been one recurring theme; companies announcing capital raisings along with their results either to survive or as an opportunistic grab. We have identified 5 companies that have been hit especially hard from the COVID-19 pandemic and chances are they will require fresh capital to keep afloat, a few of these may need a second round of capital before we know it.

  1. Corporate Travel (ASX:CTD) – With JobSeeker and JobKeeper being reduced after September, spiking cases and continued border closures, it’s difficult to see the travel industry recovering anytime soon. In fact, the International Air Traffic Association has pushed out their expectation of a full recovery in travel until 2024! This sector was hit hardest and is in real pain. We’ve already seen early casualties such as Virgin Australia (ASX:VAH) go into administration. CTD is in the same category, relying on sales generated from its online travel booking platform and particularly business and sporting events. Whilst the company said in March it did not have plans to raise capital, it has some $21.6m of borrowings at December and it can no longer survive without tapping the market for cash as Victoria pushes the lockdown out by another 5 weeks.
  2. Sydney Airport (ASX:SYD) – Also in the same category as Corporate Travel, the airport is suffering from border closures, grounded airlines and a reduction in sales. At the time of writing, the airport announced a massive $2bn equity raising along with its profit results. With an interest cover of 1.1, it was a long time coming and may not be the last as flights continue to grind to a halt.
  3. Transurban Group (ASX:TCL) – Australia’s largest toll road operator has been significantly impacted by COVID-19 due to a decimation in traffic numbers on TCL’s roads. TCL has withdrawn guidance and has been relying on free cash flow. With an interest cover of 2.3 and the need to support its current credit rating, TCL might look to tap markets for an equity raising sooner rather than later. So much for infrastructure assets offering stable, non-correlated income streams.
  4. Unibail-Rodamco-Westfield (ASX:URW) – Another sector that has been hard hit by COVID-19 is retail property i.e. shopping centres. Lockdown wiped foot traffic from shopping centres and forced the closure of many stores. Some refused to pay rent or demanded cheaper deals, in many cases rent as high as 30% of the yearly total was completely lost. To add to the disaster, shoppers have made a shift to e-commerce sites and home deliver. Experts say this shift could be permanent. URW shares have fallen from an $11.74 high to $4.24. With a net debt to EBITDA ratio of 12.12 times, Unibail-Rodamco-Westfield is very highly leveraged and a raising won’t be far away .
  5. Chorus (ASX:CNU) – Is New Zealand’s provider of telecommunications infrastructure. The lockdown in NZ has had a significant impact on Q4 fibre activity and uptake. CNU has a debt pile of around NZ$2.88b as at June 2019. The company does have NZ$273m in cash but that is fast depleting. The company has an interest cover of 3.8. One broker has said CNU might look to raise $300m through a rights issue to shore up its balance sheet.

Clearly this is a short list of many companies still struggling mid-pandemic, among those hardest hit have been energy, real estate and the banking sector. Interestingly, these businesses would likely benefit the most from a vaccine, the question being how patient an investor are you?

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