Could Qantas (QAN) shareholders be in for a second reward after the airline revealed it is on track for a record full year profit, just two years after its biggest ever loss?
The airline told the ASX yesterday it expects to more than double first-half pre-tax profit to between $875 million and $925 million when it announces its six-month results in February. That’s just short of the $975 million it made in all of the 2014-15 financial year.
Qantas, which lost a record $2.8 billion in FY14, said improved revenue, cost-cutting and continued lower fuel prices were all playing a part in its continued turnaround. That’s the same recipe it said boosted the June 30 full year profit.
But the shares failed to move ahead on the news and they lost around 2.4% to end the day at $3.65, still 54 cents off the year high of $4.19 hit on October 20.
In fact since then the shares have lost more than 12%, up to and including yesterday’s fall, even though oil prices have fallen by 20% and more (which should be a positive for the airline).
It seems the market has been fully pricing in the rebound in profit and is looking for a further improvement next year.
QAN 1Y – Qantas continues to fly high
Following yesterday’s update, analysts now expect Qantas to report a record pre-tax profit of about $1.6 billion, comfortably beating its 2008 record of $1.41 billion.
That means it will top last year’s $557 million net profit and the all-time record $970 million net profit it reported in 2008. Qantas earned $375 million in the first half of 2014-15, so the new forecast is a substantial improvement on that.
“We’ve seen improved revenue in our domestic and international operations, reduced costs across the group through the Qantas Transformation program, and expect another record half-year result from Qantas Loyalty,” chief executive Alan Joyce said in yesterday’s statement.
“This strong performance is underpinned by our continued focus on delivering the best service for our customers in all of the markets we serve."
Now analysts are speculating that shareholders could be further rewarded next year after most of the $557 million full year net profit announced in August was handed back to shareholders in the form of a 23 cents per share cash distribution.
A buyback or the resumption of dividend payments or a combination of both could be on the cards, according to analyst notes yesterday afternoon. Merrill Lynch analyst Matt Spence believes Qantas could do a buyback of between $500 million and $800 million.
Yesterday’s forecast from Qantas includes the $25 million hit sustained by its Jetstar service due to cancellations after a cloud of volcanic ash twice forced the closure of Indonesia’s Denpasar airport in July.
