Virgin Australia is Ready to Take Off

Hey Superheroes,

What an eventful week it’s been for global markets. Platinum hit a 10-year high, oil is up 20% for the month and uranium prices jumped 5% in a day – all driven by a mix of supply disruptions, geopolitical tensions and rising demand for energy and industrial metals.

In the U.S., the Fed released its decision to keep its benchmark rate steady at 4.25-4.50%, expecting two further rate cuts by the end of the year. 

Let’s dive into this week’s most anticipated story.

Virgin Australia set to re-list on Tuesday

Founded in 2000, Virgin Australia emerged as the domestic challenger to Qantas, with a reputation built on affordable pricing and standout customer service.

After nearly two decades listed publicly, Virgin collapsed into voluntary administration in 2020 amidst COVID-19 disruptions.

Acquired by private equity giant Bain Capital later that year, Virgin restructured aggressively, shedding debts, streamlining operations and pivoting toward profitability.

In this Spotlight, we break down the key points from Virgin’s Prospectus.

How Virgin Makes Money Now

Now, let’s take a closer look at Virgin’s revenue streams:

• Predominantly domestic passenger revenue, with plans to return to limited international long-haul flights through partnerships (notably with Qatar Airways).
• Growing its Velocity Frequent Flyer program – a key profit driver and revenue stream separate from passenger operations.
• Increasing ancillary revenues, such as baggage fees, seat selection and in-flight sales.

Virgin IPO: The Numbers

Virgin Australia has turned things around financially since hitting a rough patch and going through a big shake-up. They’ve reshaped their balance sheet and now their profitability margins are looking way better than they did before administration. 

With Virgin gearing up to hit the ASX runway, here’s a breakdown of the key IPO figures:

• IPO set to raise up to A$685 million, valuing the airline at approximately A$2.3 billion.
• Shares priced at A$2.90 per share.
• The raised funds will be used for the repayment of existing debt, working capital, fleet renewal and network expansion.

Looking ahead, Virgin’s expecting to pull in A$5.8 billion in revenue in FY25 and over A$429 million in net profit – a massive turnaround from the losses they were racking up before 2020. The profitability was buoyed by a significantly improved EBITDA margin of 18%.

Is Virgin’s Valuation Flying Too High?

Analyst views on Virgin Australia’s upcoming float are split. Some see a streamlined airline with strong post-restructuring potential, while others flag competitive pressure and margin risk. 

Bain’s overhaul has won praise, but investors remain cautious on whether long-term profitability will take off.

 Some other things we’re shining the Spotlight on:

WHATSAPP ADS INCOMING: Meta is introducing ads to WhatsApp for the first time, but not in your private messages. Ads will appear in the Updates tab, including Status and Channels sections, as Meta begins monetising the platform via search ads and subscriptions. 

RIO PAYS OUT: Rio Tinto will pay A$214 million to settle a class action over delays and cost blowouts at the Oyu Tolgoi mine in Mongolia. The case stemmed from investor claims that Rio misled markets on project progress and budget pressures.

VBX IPO POPS: VBX, a junior bauxite explorer, surged 32% on debut after raising A$10 million in its ASX listing. Its Guinea-style bauxite resource in WA has drawn early interest amid rising demand for aluminium inputs.

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