Financial review reporting this morning.
UBS analysts reckon Qantas Airways will have only marginal free cashflow generation in the current financial year, which could weigh on the company’s all-important investment grade rating.
The broker cut its free cashflow forecast from $300 million to a “flattish” outcome, because of ongoing revenue pressure.
“Although we do not see a current liquidity problem for Qantas, we expect downward pressure to weigh on its current investment grade credit rating,” UBS analysts told clients on Wednesday morning.
“The public debate over a government guarantee or equity investment offers relief, subject to any attached strings. In our opinion, being classed as a Government Related Entity (like the four banks) would sustain and possibly enhance the credit rating.”
Qantas has been unofficially seeking a guarantee to maintain its credit rating and to allow it to compete against foreign-owned Virgin Australia Holdings while *constrained by the Sale Act.
The company has effectively ruled out an equity raising to shore up its rating, but could other options such as selling a stake in its frequent flyer division or Jetstar’s Asian arm.
UBS analysts stuck by their “buy” rating, but trimmed the 12-month target price to $1.45 from $1.70.