Qantas shares sold off yesterday despite the airline beating interim earnings estimates and announcing a $500 million share buyback, revamping customer lounges and promising to start wi-fi across its domestic flights in 2017.
In fact the results announcement had a cornucopia of goodies in it, but the shares slid by as much as 5.5% in morning trading, rose a bit and then sold off in the afternoon to finish on $3.79, down 5%.
The shares peaked at $4.14 at the end of 2015, and have drifted since, waiting for a new stimulant. The slide in fuel prices this year didn’t provide that and nor did the news of a buyback yesterday.
It may have been a case of buy on the rumour of a good profit, and sell on the actual news – but there was enough in yesterday’s announcement to keep all investors happy, but that is not how the day turned out on the ASX.
After the 70% surge in 2015, it could have been a case that Qantas shares are nudging the top of the range when it comes to valuations, and with oil prices up above $US30 a barrel, there is a feeling that the lower oil prices (fuel) benefits might be all in the share price at the moment.
Still the turnaround from the near death three to four years ago is impressive and the underlying profit of $921 million is a long way from the $2.8 billion loss in 2013.
It was also up sharply from the $554 million a year ago, and at the top of the late December guidance from the airline for underlying profit to be in the range of $875 million to $925 million.
Revenue rose 5% to $8.46 billion in the half ended December 31 from a year earlier, and ahead of market forecasts for $8.4 billion. Net profit after tax more than tripled to $688 million in the first half from $206 million the December 2014 half year, and ahead of market expectations around $632 million.
Thanks to some fuel hedging, Qantas said it managed to cut its fuel bill by $448 million in the half, more than the $404 million it had forecast.
The airline also announced a share buyback of up to $500 million, the second lot of capital management in less than a year.
Last year the airline made a 23 cents a share distribution, totalling $505 million, but that was not a regular dividend, which remains unpaid since 2009.
Qantas also announced new investments in its airport lounges and that free wi-fi will be rolled out across all domestic flights in Australia from early 2017. It is also building a new lounge at London Heathrow to open in the first quarter of next year.
Qantas also said it would keep two of its Boeing 747-400s that were due for retirement this year, flying longer than expected because of strong international demand and lower fuel prices.
The airline said it will also be recruiting new pilots for the first time since 2009 when it receives its new Boeing 787-9 aircraft (the so-called Dreamliner) from next year.
The airline reported improved results in the domestic and international markets and said its investments in Jetstar’s Asian arms were profitable in the first half, including the first profit for Jetstar Japan.
Jetstar’s business saw a surge in profit from just $81 million a year ago to $262 million in the latest half year, while the usually troubled international arm say earnings soar to $270 million in the latest half year from just $59 million a year ago.
Analysts say Qantas is expected to report a full-year underlying profit of $1.69 billion, beating its record of $1.4 billion set in 2008.
The airline said its full-year fuel bill was expected to be no more than $3.4 billion and would be $3.3 billion at current forward Australian dollar prices.
That compares with its last update in October when it said its fuel bill was expected to be $3.61 billion with a worst case of $3.85 billion. That improvement should all drop to the bottom line.
