Virgin Australia IPO Discussion

[cove]

Ok now we get to the Bain Capital offer of Virgin Air shares. Looks like they will try to do it in stages so the first stage could be attractive. This is not financial advice……

 

[Mr_Orange]

Ok now we get to the Bain Capital offer of Virgin Air shares. Looks like they will try to do it in stages so the first stage could be attractive. This is not financial advice……

Buying shares in an airline that has gone bust twice already...... especially when being sold by private capital!

 

[cove]

Yes @Mr_Orange the number two bust caught us with worthless shares. We haven’t forgotten that.
We have business accounts with both Qantas and Virgin. When Qantas want a ridiculous price for us to fly to Sydney or Melbourne from Perth we fly on Virgin.
We have made money on Rex, Qantas and Virgin in the past but that doesn’t mean this one is going to be a winner.

 

[Quickstatus]

especially when being sold by private capital!

How much debt is it going to hold after IPO and where is the capital for any expansion going to come from (assuming it can get the airframes.)

 

[cove]

Well @Quickstatus we have to wait for the prospectus offer.
Should be a good read as Virgin have really simplified their business. Fuel today is much cheaper too.

 

[Saab34]

Seems like IPO will be decided in the next 24-48 hours according to some outlets so I’d say we will hear more later this week.

Feels like this process has been going on for a million years.

 

[Flashback]

Well @Quickstatus we have to wait for the prospectus offer.
Should be a good read as Virgin have really simplified their business. Fuel today is much cheaper too.

But for how long? Although the cuts haven't been passed onto pax so profit making at the moment unless hedged too much.

 

[clifford]

Seems like IPO will be decided in the next 24-48 hours according to some outlets so I’d say we will hear more later this week.

Feels like this process has been going on for a million years.

Yes, but if the product is a bit iffy, people will prevaricate.

 

[Mr_Orange]

Fuel today is much cheaper too.

That's hardly a management stategy to rely on!

 

[Brissy1]

I have a simple maxim... never buy private equity's "restructured" business.

The capital has been taken out and replaced with debt (Myer), so the new "value" of the shares usually based on x recent profit which can be quite artificial (Dick Smith...supplier rebate is a profit without actually selling the goods), exclude their conveniently called extraordinaries, and/or not be sustainable...hands up business owners who know how to bring forward or delay profit!
There are exceptions, when the momentum of the particular industry overcomes.

 

[Quickstatus]

never buy private equity's "restructured" business.

Especially when the IPO proceeds go to the major shareholders instead of the business.
If the major shareholders are selling why should I buy?

 

[RooFlyer]

Yes, but if the product is a bit iffy, people will prevaricate.

Do you mean financially or the flying aircraft bit?

Thing I’ll be interested in is exactly how much of the free float they decide to IPO and whether they think it’s strong enough for them to have a book-build for the instos.

 

[Saab34]

The product might be a bit iffy but it’s a duopoly market, the two main players have the lions share of premium slots, sure they both have coughpy product at times. The chances of someone walking in blowing billions to offer a competitive offer that would put the Virgin valuation at risk over time is somewhat zero.

Even gate space at Melbourne now is tight. Who we have operating now is probably who we will have in 20 years.

 

[RooFlyer]

How much debt is it going to hold after IPO and where is the capital for any expansion going to come from (assuming it can get the airframes.)

The spend from the IPO proceeds has to be detailed in the prospectus as Cove says.

Especially when the IPO proceeds go to the major shareholders instead of the business.

Not so, or not necessarily so. I took a renewable energy company through an IPO and 100% of the funds raised went to exploration and other programs of the company (and salary of course too.). We founders and prior management got our reward by the issue of cheap options and we bought our shares at low price before the company went public. Of course they were all subject for escrow for about two years.

Plus the IPO and listing on the ASX makes the stock more liquid and more easy to raise debt as the company is more transparent and has much greater reporting responsibilities.

It really depends if Bain issues new shares in Virgin or massively divides their existing number of shares and sells some of them. Only in the second case are the existing shoulders selling some of their shares.

If the major shareholders are selling why should I buy?

The question implies that the current shareholders think things will go down so they are unloading them. In this case because it’s private equity it was always in their business plan to exit the business via a trade sale or a float. The IPO has been delayed firstly due to unfavourable market conditions and secondly I think due to the fact that it’s been very profitable for Bain to hang onto the company so they haven’t been in any hurry. But they have to go sometime and it's just a matter of how greedy they are on their way out.

The reason you might buy into the IPO is that you’ve read the prospectus thoroughly and understood it and their forecasts and believe there may be capital gain in the company and some dividends along the way - compared to other possible investments or your portfolio's need for diversification.

 

[cove]

I will definitely want to read the Virgin prospectus. If they try far less than a billion dollars in this part sell off it could be ok.

 

[clifford]

Who we have operating now is probably who we will have in 20 years.

Barring another Pandemic or two (or similar).

 

[Saab34]

Barring another Pandemic or two (or similar).

International will always be at risk but I think the ship has sailed for local (domestic) lockdowns or border closures, I’d say mass civil unrest would follow if government here tried that again.

 

[drron]

International will always be at risk but I think the ship has sailed for local (domestic) lockdowns or border closures, I’d say mass civil unrest would follow if government here tried that again.

Except we have signed on to the WHO Pandemic treaty which has lockdowns +/- border closures as possibilities. Australia won't be the only country where the citizens rebel.

 

[jrfsp]

VA need to stick to domestic (and short haul intl)
The DOH flights are pretty low risk as it’s essentially QR taking all the risk but let’s hope they don’t have more intl wide body plans. Pre covid VA chopped and changed so many intl routes (apart from LAX) nothing worked.

 

[HS-TQE]

VA need to stick to domestic (and short haul intl)
The DOH flights are pretty low risk as it’s essentially QR taking all the risk but let’s hope they don’t have more intl wide body plans. Pre covid VA chopped and changed so many intl routes (apart from LAX) nothing worked.

Some of the Virgin Australia crew have been applying for the secondment program (temporary transfer to Qatar Airways) to 'gain experience' on the widebodies.

Apart from the secondment announcement, VA has NO PLANS for widebody flying for the foreseeable future, and VA's only International JV is with their part-owner Qatar Airways until 2030 at the latest (5 year agreement per IASC/ACCC).

Source for secondment: Virgin Australia and Qatar Airways partnership takes off