Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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Travel is back, PayPal disappoints, Cannabis gains on Republican bill
Peter Garnry
Chief Investment Strategist
Summary: In today's equity update we look at travel stocks gaining this month on better than expected earnings. PayPal reported a weaker than expected guidance confirming the latest rout in its share price. Lastly, Cannabis stocks were soaring yesterday on Republican bill.
Travel overall is doing better than feared in Q3
Expedia and Airbnb both delivered strong earnings last week with Expedia showing Q3 adj. EPS $3.53 vs est. $1.63 on stronger than expected revenue and Airbnb delivered Q3 adj. EBITDA $1.1bn vs est. $817mn on revenue coming in 10% above estimates at $2.24bn, despite lower gross booking value than estimated, but overall Airbnb’s result in Q3 was much better than feared given rising Covid-19 cases in the developed world. Our travel equity basket is the fifth best performing basket this month up 6.5%. Despite this month’s gains the travel industry is still impacted and the one that will take the longest to fully recover from the pandemic.
Travel basket
Source: Bloomberg and Saxo Group
| Name | Industry | Market Cap (USD mn.) | FY22 Sales growth (%) | Diff to PT (%) | 24M Fwd EV/EBITDA | 5yr return |
| Boeing Co/The | Airliner manufacturer | 130,869 | 15.6 | 17.6 | 15.7 | 62.7 |
| Airbus SE | Airliner manufacturer | 106,340 | 5.0 | 19.1 | 8.8 | 121.7 |
| Airbnb Inc | Booking platform | 127,281 | 74.4 | -3.1 | 52.4 | NA |
| Booking Holdings Inc | Booking platform | 108,402 | 59.2 | 3.2 | 15.7 | 69.8 |
| Marriott International Inc/MD | Hotel chain | 54,842 | 26.3 | -3.8 | 16.9 | 140.4 |
| Hilton Worldwide Holdings Inc | Hotel chain | 42,134 | 34.5 | -1.8 | 18.5 | 222.1 |
| Southwest Airlines Co | Airlines | 30,407 | 69.4 | 22.5 | 5.7 | 22.4 |
| Amadeus IT Group SA | Travel software | 33,369 | 30.8 | -2.8 | 15.2 | 68.8 |
| Carnival Corp | Cruise lines | 27,587 | -63.4 | 15.4 | 8.5 | -44.7 |
| Delta Air Lines Inc | Airlines | 28,577 | 67.3 | 21.5 | 6.1 | 5.2 |
| Aena SME SA | Airport Services | 26,125 | 10.9 | 3.3 | 12.7 | 34.1 |
| Expedia Group Inc | Booking platform | 28,552 | 65.0 | 1.1 | 11.3 | 58.1 |
| Royal Caribbean Cruises Ltd | Cruise lines | 23,876 | -17.4 | -0.8 | 11.1 | 26.9 |
| Ryanair Holdings PLC | Airlines | 23,355 | 224.4 | 8.6 | 8.1 | 28.0 |
| Trip.com Group Ltd | Booking platform | 19,838 | 12.4 | 19.2 | 15.6 | -24.1 |
| Sydney Airport | Airport Services | 16,839 | -26.1 | 9.5 | 25.6 | 69.4 |
| Huazhu Group Ltd | Hotel chain | 15,566 | 29.4 | 24.2 | 18.6 | 329.5 |
| Air China Ltd | Airlines | 17,328 | 26.7 | 18.1 | 6.9 | 19.2 |
| Vail Resorts Inc | Ski resorts | 14,708 | 31.9 | -3.1 | 17.6 | 158.9 |
| China Southern Airlines Co Ltd | Airlines | 16,638 | 19.3 | 15.3 | 7.9 | 15.4 |
| Aeroports de Paris | Airport Services | 14,122 | 20.8 | -9.7 | 13.3 | 46.5 |
| Shanghai International Airport Co Ltd | Airport Services | 15,055 | -3.5 | 1.2 | 27.2 | 96.6 |
| International Consolidated Airlines Group SA | Airlines | 11,876 | 12.5 | 21.8 | 5.1 | -24.2 |
| Host Hotels & Resorts Inc | Hotel REITs | 13,124 | 68.4 | 2.1 | 13.4 | 35.1 |
| InterContinental Hotels Group PLC | Hotel chain | 13,014 | 38.4 | -3.8 | 15.4 | 76.2 |
| Norwegian Cruise Line Holdings Ltd | Cruise lines | 10,450 | -40.0 | 14.7 | 9.6 | -25.6 |
| Accor SA | Hotel chain | 10,098 | 35.1 | 3.6 | 13.7 | 5.1 |
| Whitbread PLC | Hotel chain | 9,174 | 167.9 | 7.7 | 12.6 | 19.8 |
| Choice Hotels International Inc | Hotel chain | 8,428 | 39.4 | -12.9 | 20.0 | 220.2 |
| TravelSky Technology Ltd | Travel software | 5,267 | 18.1 | 36.0 | 6.7 | -13.4 |
| Grupo Aeroportuario del Sureste SAB de CV | Airport Services | 6,247 | 33.8 | 6.1 | 10.5 | 60.1 |
| TUI AG | Travel agency | 5,569 | -29.8 | -18.0 | 6.5 | -43.2 |
| Travel + Leisure Co | Hospitality services | 5,034 | 40.5 | 22.5 | 8.7 | 121.5 |
| TripAdvisor Inc | Booking platform | 4,818 | 54.2 | 19.5 | 10.3 | -24.4 |
| Park Hotels & Resorts Inc | Hotel REITs | 4,916 | 59.4 | 9.4 | 11.9 | NA |
| Sabre Corp | Travel software | 3,328 | 26.8 | 18.6 | 14.4 | -52.9 |
| Flight Centre Travel Group Ltd | Travel agency | 3,119 | 176.9 | -9.6 | 9.7 | -6.6 |
| MakeMyTrip Ltd | Booking platform | 3,715 | 151.5 | 2.1 | 50.5 | 37.7 |
| On the Beach Group PLC | Booking platform | 679 | -38.1 | 28.8 | 10.7 | 40.7 |
| Airtrip Corp | Travel agency | 832 | -15.1 | 2.8 | NA | 195.0 |
| Aggregate figures (sum or median) | 1,041,498 | 30.1 | 6.9 | 12.6 | 36.4 |
Weak guidance sends PayPal shares down
Investors were initially focused on PayPal’s Q3 result showing EPS ahead of estimates and revenue a bit below estimates, but the Venmo partnership with Amazon allowing customers to pay on Amazon with their Venmo app, kickstarted the initial positive sentiment. But then investors realized the big miss on Q4 revenue guidance at $6.85-6.95 vs est. $7.24bn, showing revenue growth is coming down to 14% y/y slightly up from Q3 at 13% y/y, but substantially below the company’s own guided long-term growth rate of 20%. Operating margin was not improving either falling for the second straight quarter. PayPal shares were 5% lower in extended trading extending this year’s drawdown to 31%. Our payment equity basket is the worst performing basket this month.
Rumours of House Republican bill legalizing cannabis
It is what the cannabis industry has been waiting for, but yesterday rumours suggested that House Republicans are expected to introduce a reform bill removing cannabis from the controlled substances act, which basically means that it will no longer be criminal on a federal level. Essentially the regulation would be more like the current regulation of alcohol. While still a rumour and an initial draft, it was enough to please investors yesterday sending our cannabis equity basket up 7.6% and 10.2% this month.
Besides the good news on the legislative side of the industry, one of the largest companies in the industry Canopy Growth reported very disappointing earnings with Q3 revenue at $131mn down 3% y/y and gross margin plunging to -54.2% from 20% in Q2 driven by an inventory write-down as consumers’ preferences changed during the quarter towards higher end products. This is a major negative for investors and the industry which is still battling with showing profitability.
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