is vba recovering together with the economy?, page-4

Snippet from some morning notes...


Virgin Blue (VBA – A$0.43), Buy Long term valuation of $0.74 or 2.1 times NTA. Before the global financial crisis Virgin Blue usually traded between 2.5 times and 4 times NTA. It is now trading at less at 1.25 times. While some of this reduction can be explained by change in business mix away from the domestic market and increased competition, we believe the overwhelming driver of the reduction is cyclical.

Thursday, October 01, 2009 Page 6
We believe 2.1 times is an appropriate long-term NTA multiple for Virgin Blue given its exposure to the domestic aviation market. This is well below its average NTA multiple of 2.4 times. A multiple of 2.1 times gives a long-term valuation of $0.74 per share. Domestic load factors improved to 81.1% in August (up 1.3pts) on pcp. The international load factor was unable to maintain
the level achieved in July however the upward monthly trend remains intact.

We have upgraded our June 2010 price target to $0.65 from $0.49 and our recommendation to Buy. The new price target
represents a 12% discount to our new long-term valuation of $0.74. Risks to this price target include fuel costs, capacity reinstatement, and bigger than expected international losses.