Be wary of fully-recovered travel stocks
Travel stocks may be recovering but investors will need to be very selective as some may have added substantial debt to get through the pandemic, according to Janus Henderson.
Speaking at a conference, Jeremiah Buckley, portfolio manager at Janus Henderson, said investors needed to consider a company’s future position in a post-COVID world.
“We are seeing the travel market close to fully recovered domestically in the US, people are anxious to travel again so there is pent-up demand and things are getting there in the international/business travel space,” he said.
“But we think investors have to be very selective and this is where active management really matters as there are some companies within the sector which have recovered their full valuation plus more but they have added substantial debt. Investors have to be careful where the enterprise value is much bigger than before the pandemic.”
There had been varied performance for travel stocks over the past year with Corporate Travel Management returning 108% over one year to 1 July, 2021, while others like Helloworld Travel saw losses of 29%. Flight Centre returned 29%, Qantas returned 19% and Sydney Airport returned 2%, according to FE Analytics.
However, there were certain travel companies which would be likely to emerge from the pandemic in a stronger position.
“Those firms which have a better balance sheet or a stronger business model and were able to weather the storm better, those investments they made during the pandemic will allow them to gain market share from their competitors who are having to focus on deleveraging their balance sheets,” Buckley said.
One sector where he was optimistic was on consumer discretionary thanks to increased household savings which he said meant valuations had fully recovered.
“Valuations in consumer discretionary have fully recovered, consumers are in a great position to spend given significant pent-up demand, strong balance sheets, record consumer wealth and housing prices wealth,” he said.
“We think it may be another are where the valuations don’t capture the potential growth but you have selective by sector and go for all cyclical areas.”
AUTHOR
Laura Dew
Recommended for you
Australian fund managers are actively seeking to launch Cayman versions of their funds to attract offshore flows, with Regal Partners set to launch its latest offering this month.
As private markets gain traction in Australia but only a limited pool of talent is available, three recruiters explore whether fund managers should consider looking overseas to find top talent.
With an explosion of private credit managers appearing in the market, two alternatives experts believe a consolidation is needed to maintain the quality of the sector.
Bentham Asset Management has become the latest fund manager to expand its distribution team as it reports increased interest in its credit strategies.
