This article was first published for Livewire Markets on Thursday, 23 February.
It's clear skies and following winds for Australia's national carrier. Qantas (ASX: QAN) has recovered from a $1.2 billion loss in the prior corresponding period to a $1.4 billion profit in H123. Shareholders, meanwhile, are set to be rewarded in the form of a buy back of up to $500 million.
“This is a huge turnaround considering the massive losses we were facing just 12 months ago," Qantas Group CEO Alan Joyce said of the results.
“When we restructured the business at the start of COVID, it was to make sure we could bounce back quickly when travel returned. That’s effectively what’s happened, but it’s the strength of the demand that has driven such a strong result."
At the time of writing, the stock is down 7%, which according to Kelli Meagher from Sage Capital is a "mystery." The market broadly expected the result and any new information provided "was net positive". A case of profit-taking in a tough economic environment, perhaps.
I sat down with Kelli to run through the results and the outlook for the Flying Kangaroo and the sector writ large.
Underlying profit before tax of $1.43 billion vs expectations of $1.45 billion
NPAT of $1 billion vs expectations of $1.02 billion
Earnings per share of 53.9 cents
Net debt of $2.4 billion, down from $3.9 billion
Cash on balance sheet of $4.1 billion
On-market share buy-back of up to $500 million announced
Underlying EBIT by segment
Domestic: $785 million vs expectations of $683.8 million
International: $464 million vs expectations of $474.2 million
Jetstar A$177 million vs expectations of $245.1 million
Loyalty A$220 million vs expectations of $212.5 million
Key company data for Qantas
QAN was ranked ninth by Market Meter among ASX 100 companies for CEO effectiveness. For more information on MarketMeter, please click here.
The key takeaway is that demand is still strong, and consumer intention to travel is high - even higher than pre-COVID. And they upgraded their targets and announced a buy-back.
The stock is down 7% which is a mystery given that most of the result was known and the new news in the result was net positive - demand strong, not seeing cracks in the consumer, and the targets they set for 2024 are a minimum.
There weren't any major surprises at all. The buy back was a little higher than expected, the capex guidance was a little higher, but generally no surprises at all.
Rating: BUY
I would be a buyer, especially with the stock down 7% and potentially looking at an upgrade down the track.
At the moment it looks like there's no stopping the consumer and the studies Qantas and others have done show that the intention to travel is very high and so the only risk is if that changes; the consumer all of a sudden decides to de-prioritise travel and pull back on spending. But there's no sign that is happening or will happen.
There are also benefiting from the cost-out. They've done a lot of restructuring internally [since COVID] so there are costs coming out permanently that are COVID costs, such as $400m that will not be there going forward. And then in terms of their basic operations, they've done a lot of efficiency work and taking costs out permanently. So as demand continues to increase, they're fundamentally in a stronger position with stronger margins.
Rating: 4
There are some pockets of value, and Qantas is a case in point. Given where bond yields are, the market overall is looking a little expensive. So I'd say a four.
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