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Is it wise to hold Qantas for higher returns?

Team Veye | 08 May 2019 ASX - QAN, QAN
Is it wise to hold Qantas for higher returns?

Qantas Airways Ltd (ASX:QAN)

On 21st Feb’19, the company delivered a strong first half bill despite a higher fuel bill. The key highlights were as follows:

      •  Underlying Profit Before Tax: $780 million (down $179 million)
      • Statutory Profit Before Tax: $735million (down $105 million)
      • Fuel cost: $2.0billion (up $416 million)
      • Record result for Qantas Domestic, Jetstar Domestic and Qantas Loyalty
      • Net free cash flow: $218 million
      • Statutory Earnings Per Share: 30c
      • Return On Invested Capital: 19.3%
      • Up to $500 million shareholder return: interim dividend increased to 12 cents per share fully franked, plus an on-market buyback of up to $305 million
      • Higher fuel costs for FY19 expected to be fully recovered by end-of-year
      • Major environmental program to remove 100 million single-use plastic items, slash waste to landfill by 75%

 

The company highlighted that this was despite a $416 million (27%) increase in its fuel bill. The company highlighted that the Net debt was at the bottom of the target range at $5.2 billion. Debt maturity has been improved by a 10 year, $450 million debt program and short term liquidity remained strong at $2.5 billion.

As part of its outlook, the group expected transformation benefits to be at least ~$400 million and upside from more favourable alignment of school and public holidays in the second half compared to FY18.   (Data Source – Company Reports).

 

Veye’s Take

The stock price of the company after touching an all-time high of $6.83 on 21stAug’18 slipped 23% until 26th Oct’18 post which it has started recovering only to slip again during the 4th week of Jan’19 and experience a lot of short term fluctuations.  The company is expected to offset rising fuel costs by net passenger revenue growth and capacity discipline as per its strategy and is well placed with expected healthy consumer demand growth consistent with an improved global outlook.  We maintain a “Hold” on “Qantas Airways Ltd” at the current price of $5.540

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