wirgin blew
27th May 2006, 03:59
Fuel drain takes $2bn off Qantas
The Australian
Kevin Andrusiak
May 26, 2006
RISING demand for aviation fuel combined with limited capacity in Asia has prompted an investor backlash against airline shares and wiped billions from the value of Qantas, in what has become one of the worst performing sectors of the Australian equities market.
Shares in the national carrier have dived with its stock-price chart resembling the descent of one of its jumbo jets into Kingsford-Smith airport in Sydney.
The sell-off in the past 15 weeks has wiped more than $2 billion from its market capitalisation, returning the price to about where it was before the record bull run began in March 2003.
Rising oil prices are also seen as the biggest cause of the sell-off, which started after the stock hit a 12-month high of $4.29 in February.
Qantas said yesterday it had a policy of not commenting on its share price, but stock exchange chatrooms on the internet are filled with comments about investors making millions by short-selling Qantas shares.
It is believed that refining capacity for aviation fuel in Asia is limited until at least 2008, and that it will have to accommodate an expected increase in airline demand of around 7.5 per cent.
ABN AMRO analyst Anthony Srom said in an April report on Qantas that, with the high jet-fuel prices likely to persist, it presented a "bear case" scenario for the stock, with a target price of $3.06 a share.
The Qantas share price has fallen by about 20 per cent this year, after having outperformed the All Ordinaries index during the last six weeks of 2005.
It comes despite Qantas introducing a $5 surcharge to fares on both its own fleet and Jetstar's.
Qantas shares yesterday fell a further 2c to $3.23.
"We retain our 'sell' rating as the valuation metrics do not appear compelling, even on a regional basis, and the earnings outlook has not stabilised," Anthony Srom said.
"Key risks to our target price include sustained high jet-fuel prices, a health pandemic, upside from a trans-Tasman alliance."
Qantas said yesterday that the recent spread of bird flu across the globe had not affected ticket sales.
Merrill Lynch had also reduced its earning forecasts for Qantas by 15 per cent.
"While Qantas has had little difficulty in passing on fuel costs to customers over the past two years, we wonder when demand will start to be affected," analysts Simon Mitchell and Olivia Burgess said.
"Although Qantas has underperformed the market by 21 per cent since we downgraded to a 'sell' in early February, we see further downside risk."
The Australian
Kevin Andrusiak
May 26, 2006
RISING demand for aviation fuel combined with limited capacity in Asia has prompted an investor backlash against airline shares and wiped billions from the value of Qantas, in what has become one of the worst performing sectors of the Australian equities market.
Shares in the national carrier have dived with its stock-price chart resembling the descent of one of its jumbo jets into Kingsford-Smith airport in Sydney.
The sell-off in the past 15 weeks has wiped more than $2 billion from its market capitalisation, returning the price to about where it was before the record bull run began in March 2003.
Rising oil prices are also seen as the biggest cause of the sell-off, which started after the stock hit a 12-month high of $4.29 in February.
Qantas said yesterday it had a policy of not commenting on its share price, but stock exchange chatrooms on the internet are filled with comments about investors making millions by short-selling Qantas shares.
It is believed that refining capacity for aviation fuel in Asia is limited until at least 2008, and that it will have to accommodate an expected increase in airline demand of around 7.5 per cent.
ABN AMRO analyst Anthony Srom said in an April report on Qantas that, with the high jet-fuel prices likely to persist, it presented a "bear case" scenario for the stock, with a target price of $3.06 a share.
The Qantas share price has fallen by about 20 per cent this year, after having outperformed the All Ordinaries index during the last six weeks of 2005.
It comes despite Qantas introducing a $5 surcharge to fares on both its own fleet and Jetstar's.
Qantas shares yesterday fell a further 2c to $3.23.
"We retain our 'sell' rating as the valuation metrics do not appear compelling, even on a regional basis, and the earnings outlook has not stabilised," Anthony Srom said.
"Key risks to our target price include sustained high jet-fuel prices, a health pandemic, upside from a trans-Tasman alliance."
Qantas said yesterday that the recent spread of bird flu across the globe had not affected ticket sales.
Merrill Lynch had also reduced its earning forecasts for Qantas by 15 per cent.
"While Qantas has had little difficulty in passing on fuel costs to customers over the past two years, we wonder when demand will start to be affected," analysts Simon Mitchell and Olivia Burgess said.
"Although Qantas has underperformed the market by 21 per cent since we downgraded to a 'sell' in early February, we see further downside risk."