The ASX 200 (ASX: XJO) has been volatile this morning. At one point at it reached 5994 points, but it has fallen back to 5,960 – up only 0.14% at lunchtime.
Bank of Queensland Limited (ASX: BOQ) impairment
BOQ announced that it has completed its FY20 collective provision modelling and the FY20 loan impairment expense will be $175 million (pre-tax).
The regional bank said this includes a COVID-19 related collective provision expense of $133 million (pre-tax) which is based on updated RBA economic data, analysis on the banking relief package and their likelihood of recovery, and a significant exposure review.
BOQ also said that a (pre-tax) $11 million expense will be recognised after a review of historical employee pay and entitlements will be included in the FY20 result. It reviewed its payroll after seeing wage and superannuation issues elsewhere. BOQ initially found issues with super payments and then found issues relating to enterprise agreements. It has already paid $2.4 million to the ATO.
The FY20 impairment of $175 million equates to approximately 37 basis points (0.37%) of BOQ’s gross loans.
The total $133 million provision relates to $10 million from the first half and a further $123 million in the second half. This is expected to reduce BOQ’s CET1 ratio by 39 basis points (0.39%). However, the bank said it ended the year with its CET1 ratio comfortably above the 9% to 9.5% range thanks to “strong organic capital generation” in the second half, which offset the reduction.
After evaluating the latest RBA data and the bank assumptions, BOQ thinks there will be higher unemployment, downgrades to property prices and an increased duration of the economic downturn. It has also increased the probability weightings to the downside and severe case scenarios from its first half modelling assumptions.
Regarding the dividend, BOQ CEO and managing director George Frazis said: “We are very aware of the importance of dividends to our shareholders, including to our significant number of loyal retail shareholders. We have completed our scenario analysis in relation to dividends and have consulted with APRA in line with guidance issued on 29 July 2020. The Board will make a determination on dividends in relation to FY20 at our full year results.”
The BOQ share price is down 4% at lunch.
Corporate Travel Management Ltd (ASX: CTD) acquisition
Corporate Travel is going to buy Travel & Transport for (a cash and debt free enterprise value of) US$200.4 million.
Travel & Transport was founded in 1946. It is described as a leading US travel management company headquartered in Omaha, Nebraska. Over 90% of the 2019 total transaction value (TTV) was generated by the US segment, with the rest being made by the European business.
In 2019 it generated TTV of US$2.8 billion and pro forma (calculated) EBITDA of US$29 million (click here to learn what EBITDA means). More than 60% of the 2019 TTV was made from corporate air travel and another 30% was from hotels.
Corporate Travel believes the customer mix is highly complementary for its existing business, with a focus on professional services and healthcare clients. It has low customer concentration, with the largest customer representing only 2.5% of 2019 air volumes and the top 50 customers being less than 45% of air volumes.
Travel & Transport also owns Radius Travel, which operates a large-scale hotel program with partnerships with hotel brands in 160 countries.
The implied acquisition multiple is 7x the Enterprise value / CY19 pro forma EBITDA based on the audited CY19 financials, which was prior to COVID-19.
It’s expected this acquisition will add 10% to profit/earnings per share (EPS) on a pro forma 2019 basis excluding synergies, and add 30% including synergies. Corporate Travel estimated full run-rate synergies of US$18 million, which are expected to be delivered within 2 years.
Once combined, the Corporate Travel business will be one of the leading mid-market corporate travel managers in the world with around AU$10.8 billion TTV and North American TTV of US$3.6 billion, based on 2019 numbers.
As part of the update, Corporate Travel said that it and Travel & Transport are currently operating at 25% and 13% of last year’s transaction volumes, respectively.
Over July and August 2020, the ‘combined’ group generated average revenue of AU$14 million each month and an average underlying EBITDA loss of AU$5.7 million. The average cash burn was AU$7.5 million per month.
After the capital raising, Corporate travel will have a net cash position of $126.8 million and £100 million from a committed undrawn finance facility.
It’s going to raise $375 million for acquisition costs, integration costs, provide additional liquidity to fund potential losses for a prolonged period, give balance sheet flexibility and provide capacity for other acquisitions.
The capital raising is a full underwritten accelerated non-renounceable entitlement offer where each shareholder can buy a share for every 4.03 Corporate Travel shares they currently own at a price of $13.85, which is a 14.3% discount to the last traded price of 25 September 2020 of $16.16.
All non-executive directors have indicated they will take part in the offer, though Corporate Travel’s founder and managing director – Jamie Pherous – has indicated he won’t participate.
The team over at Rask Media have covered the rest of today’s news, so make sure you head over there for more ASX share market coverage.
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