Wirraway
16th Sep 2003, 14:42
Dow Jones
Qantas Might Be Ready For Takeoff
By Lilly Vitorovich
Of DOW JONES NEWSWIRES
SYDNEY (Dow Jones)--If you fancy yourself as a gambler, Qantas Airways Ltd. is the airline stock for you.
Australia's national carrier was down on its luck earlier this year. Like many other airlines its earnings were hit by the continuing impact of the Sept. 11 terrorist attacks, the wars in Afghanistan and Iraq, the Bali bombings and the outbreak of SARS.
But the outlook has improved, and this should be reflected in the share price as passengers return to the skies. Further signs of a global economic recovery are also likely to boost investor confidence and kick start business travel, said fund managers and analysts.
Indeed, some analysts believe the stock could soar nearly 40% in the next 12 months but all acknowledge that things happen quickly in a turbulent industry like this.
Four of five transport analysts surveyed by Dow Jones Newswire have an outperform recommendation on Qantas, with share price targets ranging between A$3.97 to A$4.50. One lone analyst has a hold recommendation and a 12-month target price of A$3.30.
At the end of Tuesday morning trade, Qantas shares are 5 cents weaker at A$3.24 and have dived about 9% since the war in Iraq began in March.
BT Financial Group portfolio manager Troy Angus believes there is blue sky ahead for Qantas.
"My view is that the stock will probably trade higher," Angus says. "It's always hard to say by how much of course."
But the biggest issue facing Qantas is the increasing competition in Australia from Virgin Blue, which has steadily built its market share to around 30% since takeoff in August 2000.
"Qantas, ultimately needs to address that issue, to get investors really enthusiastic," said Deutsche Asset Management portfolio manager Shawn Burns.
Another repeat of the SARS epidemic will be a major blow to Qantas and the aviation sector in general, which has been under a black cloud for two years.
"The negative though, is whether SARS comes back," said Burns.
"If SARS comes back in a big way, just forget about it, Qantas is going nowhere I'd say," he said.
Qantas is expected to soon release its July traffic data, a key indicator about whether passengers are returning and how the airline is trading in the first month of fiscal 2004.
While a stronger Australian dollar is also likely to support earnings in the first half of 2003-04, investors are mixed on the benefits of the Rugby World Cup which is being staged around Australia in October and November.
"It's probably a bit of an earner for them," says Angus, but notes the 2000 Sydney Olympic games "generated a lot of volume but not a lot of profit."
"We're not anticipating the (Rugby) World Cup to necessarily prop up the first-half results. We're not expecting big things out of the World Cup," he said.
Citigroup transport analyst Jason Smith believes "the overall event will have a positive impact" on first-half earnings, "underpinned by extensive domestic travel by Australians flying interstate to see several key games."
Other factors that are being closely watched by analysts are Qantas' A$1 billion Sustainable Future program over the next two years, an ongoing company restructure and a more aggressive focus on its local operations as it mulls setting up a budget carrier to challenge Virgin Blue.
Last month, Qantas posted a second-half net loss of A$9 million that was due to a sharp fall in bookings in the wake of the war in Iraq and SARS. Annual net profit dropped 20% to A$343.5 million, underpinned by a first- half contribution of A$352.5 million.
While Qantas is in the enviable industry position of being one of the world's most profitable airlines, its earnings base is under constant pressure from the domestic inroads made by rival Virgin Blue, which is preparing for an initial public offering. Ongoing talk that Singapore Airlines Ltd. (P.SAL) might launch a third domestic operation also has some investors nervous.
BT's Angus played down the SIA talk, noting the Singapore carrier had the chance to make its appearance on the domestic scene when Ansett Australia went belly-up in March 2002.
"I doubt that we'll see them here in the domestic market flying only their own banner. It would be a good way to lose of lot of money very quickly," he said.
Another pressure point for Qantas is the emergence on the highly competitive but also very profitable trans-Tasman route of Emirate Airlines and Virgin Blue.
At the same time, Qantas is busy trying to get its proposed alliance with Air New Zealand Ltd. over the line after Australia's competition regulator rejected the proposal last week. The two airlines have until Sept. 30 to lodge an appeal with the Australian Competition Tribunal.
The New Zealand Competition Commission is expected to hand down its decision by the end of the month.
While the alliance is important to both airlines, it isn't expected to be a factor in Qantas earnings this year. If the deal is approved, it will add A$0.50 apiece to Qantas' share price, according to analysts.
Copyright © 2002 Dow Jones & Company Inc. All rights reserved.
============================================
Qantas Might Be Ready For Takeoff
By Lilly Vitorovich
Of DOW JONES NEWSWIRES
SYDNEY (Dow Jones)--If you fancy yourself as a gambler, Qantas Airways Ltd. is the airline stock for you.
Australia's national carrier was down on its luck earlier this year. Like many other airlines its earnings were hit by the continuing impact of the Sept. 11 terrorist attacks, the wars in Afghanistan and Iraq, the Bali bombings and the outbreak of SARS.
But the outlook has improved, and this should be reflected in the share price as passengers return to the skies. Further signs of a global economic recovery are also likely to boost investor confidence and kick start business travel, said fund managers and analysts.
Indeed, some analysts believe the stock could soar nearly 40% in the next 12 months but all acknowledge that things happen quickly in a turbulent industry like this.
Four of five transport analysts surveyed by Dow Jones Newswire have an outperform recommendation on Qantas, with share price targets ranging between A$3.97 to A$4.50. One lone analyst has a hold recommendation and a 12-month target price of A$3.30.
At the end of Tuesday morning trade, Qantas shares are 5 cents weaker at A$3.24 and have dived about 9% since the war in Iraq began in March.
BT Financial Group portfolio manager Troy Angus believes there is blue sky ahead for Qantas.
"My view is that the stock will probably trade higher," Angus says. "It's always hard to say by how much of course."
But the biggest issue facing Qantas is the increasing competition in Australia from Virgin Blue, which has steadily built its market share to around 30% since takeoff in August 2000.
"Qantas, ultimately needs to address that issue, to get investors really enthusiastic," said Deutsche Asset Management portfolio manager Shawn Burns.
Another repeat of the SARS epidemic will be a major blow to Qantas and the aviation sector in general, which has been under a black cloud for two years.
"The negative though, is whether SARS comes back," said Burns.
"If SARS comes back in a big way, just forget about it, Qantas is going nowhere I'd say," he said.
Qantas is expected to soon release its July traffic data, a key indicator about whether passengers are returning and how the airline is trading in the first month of fiscal 2004.
While a stronger Australian dollar is also likely to support earnings in the first half of 2003-04, investors are mixed on the benefits of the Rugby World Cup which is being staged around Australia in October and November.
"It's probably a bit of an earner for them," says Angus, but notes the 2000 Sydney Olympic games "generated a lot of volume but not a lot of profit."
"We're not anticipating the (Rugby) World Cup to necessarily prop up the first-half results. We're not expecting big things out of the World Cup," he said.
Citigroup transport analyst Jason Smith believes "the overall event will have a positive impact" on first-half earnings, "underpinned by extensive domestic travel by Australians flying interstate to see several key games."
Other factors that are being closely watched by analysts are Qantas' A$1 billion Sustainable Future program over the next two years, an ongoing company restructure and a more aggressive focus on its local operations as it mulls setting up a budget carrier to challenge Virgin Blue.
Last month, Qantas posted a second-half net loss of A$9 million that was due to a sharp fall in bookings in the wake of the war in Iraq and SARS. Annual net profit dropped 20% to A$343.5 million, underpinned by a first- half contribution of A$352.5 million.
While Qantas is in the enviable industry position of being one of the world's most profitable airlines, its earnings base is under constant pressure from the domestic inroads made by rival Virgin Blue, which is preparing for an initial public offering. Ongoing talk that Singapore Airlines Ltd. (P.SAL) might launch a third domestic operation also has some investors nervous.
BT's Angus played down the SIA talk, noting the Singapore carrier had the chance to make its appearance on the domestic scene when Ansett Australia went belly-up in March 2002.
"I doubt that we'll see them here in the domestic market flying only their own banner. It would be a good way to lose of lot of money very quickly," he said.
Another pressure point for Qantas is the emergence on the highly competitive but also very profitable trans-Tasman route of Emirate Airlines and Virgin Blue.
At the same time, Qantas is busy trying to get its proposed alliance with Air New Zealand Ltd. over the line after Australia's competition regulator rejected the proposal last week. The two airlines have until Sept. 30 to lodge an appeal with the Australian Competition Tribunal.
The New Zealand Competition Commission is expected to hand down its decision by the end of the month.
While the alliance is important to both airlines, it isn't expected to be a factor in Qantas earnings this year. If the deal is approved, it will add A$0.50 apiece to Qantas' share price, according to analysts.
Copyright © 2002 Dow Jones & Company Inc. All rights reserved.
============================================