Qantas shares could slide 30pc after boom, Angus Aitken warns clients
Ayesha de KretserSenior KEY POINTS
- Why it matters: Qantas shares have soared as it benefits from booming demand
- The airline must spend billions on new planes, which could cut into returns
- The company is due to report its full-year financial accounts on August 24
Qantas shares could fall 30 per cent as the airline faces hefty spending on aircraft and its once-loved brand is tarnished by poor customer service, high-profile stockbroker Angus Aitken has warned his clients.
Urging them to sell, Mr Aitken wrote in a note to clients that investment analysts were too bullish on Qantas’ future performance, adding that it was “a great time to take profits” and its market capitalisation was “punchy”.
Zucchini fritters aside, Angus Aitken has a long list of reasons to sell Qantas. Angus Aitken “How can every analyst love a stock that underneath it all has many cyclical elements? You should worry about a broker research panel that looks like this with no sells,” Mr Aitken wrote, adding that earnings could “easily go back to” $3 billion from around $4.5 billion for the last financial year.
“This sad-looking packet of vegan zucchini fritters served to me on a flight to [Queensland] to me sums up Qantas as a business and a brand,” he wrote, attaching a photograph of a meal he had been served.
“You pay a sh**load of money for what should be a premium product and the service is Z grade for those high airfares. I reckon even the hosties were embarrassed to serve this rubbish to the customers.”
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View QAN related articles In particular, Mr Aitken was scathing of Qantas chief executive Alan Joyce’s decision to ban
The Australian Financial Review from its lounges, writing managers “who don’t take criticism well always worry me”.
“Part of getting paid ... as a CEO in a public company is copping some negative heat, if you don’t like it, then don’t accept tens of millions in salary and bonus and go drive an Uber,” he said, adding that many investors will look back after Mr Joyce departs and wonder why they did not sell.
In May, Qantas removed
The Financial Review from its lounges after Mr Joyce was criticised in the Rear Window column. The carrier has previously pulled advertising from
The Sydney Morning Herald and
The Age after what it perceived to be negative coverage of the company in 2014.
Mr Aitken said investment was needed in the fleet after five years of Qantas doing “as little as possible” to invest in both the fleet and service overall.
“Qantas reminds me of Woolworths about 15 years ago when they were number one and invested nothing in their business, then suddenly Coles came along and started beating them,” he said.
Acknowledging he might be six months early given expectations for record profits of between $2.4 billion and $2.5 billion when the airline reports its full-year results on August 24, Mr Aitken added that “the stock is fully valued and priced for zero cyclicality longer term”.
Analysts say Qantas is facing as much as $15 billion in looming capital expenditure as it takes delivery of narrow body domestic aircraft over the coming five years. But it also has to replace its fleet of A330s, which some analysts, including Morningstar’s Angus Hewitt,
expect will “absorb meaningful cash flow and constrain returns to shareholders”.
“There is a lot of pent-up demand at the moment and that’s really driving tremendous profitability. We think this is about as good as it gets for airlines,” Mr Hewitt wrote in an earlier note to his clients.
Among reasons Mr Aitken gave to sell Qantas shares was the airline’s poor service, and the likely increase in competition from international carriers.
“The service is rubbish. It is hard to speak to a single person who has flown this airline in recent years who has anything other than negative anecdotes about them. That is very, very bad for Qantas’ brand,” he said.
“For full disclosure, no I am not a Chairman’s Lounge member and no, I am not writing this due to being replaced as a member by ‘working class’ Albo’s son,” he added, referring to a report in Rear Window last week that Prime Minister Anthony Albanese’s son
had been given access to the luxury invite-only club that is usually reserved for executives and celebrities.