Should you buy shares in Virgin Australia? Experts weigh in ahead of airline’s IPO

Will Virgin Australia shares soar this time around? Investors appear divided on the prospects of the airline’s much anticipated IPO.

Should investors buy Virgin Australia shares when it floats on the ASX, again?

Fund managers say appetite for the Virgin Australia IPO, the biggest ASX float of 2025, comes down to investor comfort with duopoly-style returns and a willingness to own the second-best operator in an industry ruled by Qantas.

There has been no shortage of support for the deal, with institutional investors committing to the $685m capital raising ahead of Thursday’s deadline.

Virgin’s US owner Bain Capital is offering 30 per cent of the company at $2.90 a share, in a deal that values the airline at $2.3bn when it returns to the bourse by month’s end.

Portfolio manager at Blackwattle Investment Partners, Joseph Koh, said the IPO appeared to be an “interesting investment opportunity” for consideration.

Should you buy Virgin Australia shares

“We think the exposure to the domestic industry is actually quite good, because the domestic airline market is much better quality than international given the duopoly between Qantas and themselves (Virgin),” said Mr Koh.

He said the strength of the Qantas share price was also a plus, providing the rational approach to competition being adopted by both halves of the duopoly continued.

“Qantas has obviously done very well, and I think people will be looking at the multiples for Qantas which is more like ten times P/E (price to earnings) relative to Virgin which is closer to seven times on a normalised basis, so yes I think the share price strength in Qantas does suggest there is some scope for valuation upside for Virgin,” Mr Koh said.

“We understand Qantas does have the market leading share in Australia and a very good loyalty business, but we think Virgin does have other aspects that make it quite attractive, including its younger fleet age, and the fact they’re far more focused on domestic travel.”

The main risk to the IPO was the entry of a third player into the domestic market, which could trigger price and capacity wars.

It’s understood Virgin Australia CEO Dave Emerson broached the topic in discussions with investors, highlighting the global aircraft shortage as a major obstacle to new entrants seeking to take on the entrenched duopoly.

New Virgin Australia CEO Dave Emerson. Picture: supplied

What about Virgin’s collapse?

Less enthusiastic about the IPO, was Forager Funds founder and chief investment officer Steve Johnson, who said he had taken a look at the slide deck and decided Virgin shares were not for Forager.

“We considered the history of the company, they were listed for a very long time (from 2002 to 2020), and it is difficult being the second airline to Qantas in Australia,” said Mr Johnson.

“I have no doubt there is a lot of interest being shown, there’s definitely been a shift in the last six weeks and the float appears to be well timed but it’s not for us.”

In 2002, Virgin Blue, as it was called, listed at $2.25 a share with the price briefly climbing above $2.50. But from 2007 onwards, the share price sat below $1, sinking to 9c before the company appointed administrators.

Other fund managers who spoke to The Australian on the condition of anonymity said they didn’t get involved in IPOs, and took the view they were merely about private equity “lynching out businesses for as much value as they could possibly get”.

Another said they believed the process had been rushed, and did not like the fact the prospectus was not being (publicly) filed until after the book build took place.

“It’s been flipped the other way round,” he said.

Investor meetings first undertaken in 2023 resumed in late March after the transition from Jayne Hrdlicka to Mr Emerson, with the goal of listing by mid-year.

Bain Capital has scheduled Virgin Australia’s return to the ASX for Tuesday June 24. It has been absent from the ASX since November 2020.

Since then, Virgin has undergone a major transformation which helped deliver the company’s first annual profit of $129m in over a decade in October 2023.

In March, Virgin reported record underlying earnings for the six months to December 31 of $439m, on the back of strong passenger loads, increased capacity, cost discipline and the exit of Rex from metropolitan routes.

Originally published as Should you buy shares in Virgin Australia? Experts weigh in ahead of airline’s IPO