Time is ripe for a Qantas bid
August 24, 2011 - 12:06PM
The rumour that Qantas is being eyed as an acquisition target by private equity funds gained root yesterday afternoon because the environment is fertile for just such a move.
That doesn’t mean the rumour is right - despite several hours of investigation yesterday no one seemed to be able verify that it had any substance. However it can’t be seriously dismissed because it is all too plausible.
There is plenty of value to unlock in Qantas while it is trading at these levels - particularly if you split the airline into its brands - Qantas, Jetstar and Frequent Flyers.
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All the analysts understand it is trading below its value - and have had buy recommendations on the stock for weeks.
But large and small investors alike ignore all this because they perceive it has more downside - if or when the industrial action from pilots and/or engineers eventuates.
The investors are probably right. Historically industrial action that has seriously affected airline schedules has had a very negative impact on the share price.
With each time Joyce makes a public appearance he further cements this preparedness to stay in the trenches opposite his unhappy work force rather can capitulate to what he considers to be an unrealistic set of demands.
Qantas is now fully committed to a growth strategy that involves setting up new airlines in Asia and shedding 1000 staff to suit the new slimline Qantas brand. This is despite the reasonably strong earnings for the year it released yesterday.
The workforce will seize on the solid result to argue that the airline does not need to cut labour costs and relocate capital to cheaper geographies.
Joyce will be hoping the positive result consolidates his position as the company's leader and fortifies his credentials to deliver on the new strategy.
Some of today’s early share price gains - however - will be the lingering hope from investors that the shadowy talk of takeover might contain some grain of truth.
Certainly the time is ripe. Once Joyce goes on a spending spree to equip his two fledgling airlines it loses its appeal to the buy-in-gear up-refloat private equity brigade.
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Time is ripe for a Qantas bid