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Virgin Australia Holdings Limited

Virgin Australia Holdings Limited

Virgin Australia (ASX: VAH) has said that it expects to post a pre-tax loss for the year to 30 June 2013, excluding one-off costs, of between $30m and $50m.

A quick analysis of VAH over the past decade reveals a business with appalling economics. Fortunately, this company has not been investment grade for Montgomery and we have avoided it accordingly.

Benjamin Graham wrote that the owner of stocks should regard them first and foremost as a part ownership of a business. That is, stock owners shouldn’t be too concerned about erratic fluctuations in stock prices, since in the short term, the stock market behaves like a voting machine. In the long term, however, it acts like a weighing machine.

Hence the 79 per cent decline in the VAH share price in the past decade!

Readers may be interested to know Montgomery regard only 24 per cent of the 1,829 companies listed on the ASX as “investment grade”.

Year to June


2013 (Est.)


Normalised Net Profit ($m)




Shareholders’ Funds ($m)




Return on Shareholders’ Funds




Debt ($m)




Share Price





Chief Executive Officer of Montgomery Investment Management, David Buckland has over 30 years of industry experience. David is a deeply knowledgeable and highly experienced financial services executive. Prior to joining Montgomery in 2012, David was CEO and Executive Director of Hunter Hall for 11 years, as well as a Director at JP Morgan in Sydney and London for eight years.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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  1. As Richard Branson once famously said when asked how to become a millionaire: “Start as a billionaire and then buy an airline”.

  2. Andrew Legget

    Airlines are definitley one of my holy trinity of industries to avoid (the other two being car manufacturers and sports teams). There are others but these three sit above them all, for example, i don’t consider any mining and resources company either.

    I think we can all agree that airlines make lousy investments. I thought i might though, seeing you mentioned Ben graham, discuss his approach for a while. From what i understand it was a purely quantitative approach and very well diversified. For his talk of thinking about owning slices of the business, if my understanding is correct and the price and financial details warranted it then he would have bought companies like Virgin.

    It is one of my “issues” I had with, at least my understanding of, his approach. When you value companies as if they are dead then you will find yourself owning quite a few that potentially soon will or should be.

    I think his thoughts on the market and investor psychology though are one of the most important concepts I believe exist in investing.

    • Hi Andrew,

      I am almost certain that if Ben Graham had access to a computer in the 30s and 40s he might have reached a few different conclusions. His two most important and useful contributions where Margin of Safety and Mr Market. When he went ‘off piste’ it sometimes went a little pear shaped albeit his returns And those of his students were stable and spectacular. Shows that a variety of interpretations can make money.

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