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jb were / goldman sachs a buy? Qantas can grow earnings: analysts
www.theaustralian.com.au

February 17, 2006

QANTAS had the potential to grow earnings in the coming years despite high fuel costs, analysts said today.

However they cautioned that the key hurdle for the airline was the outcome of a Federal Government review into aviation policy, which could allow foreign carriers greater access to some of Qantas' (qan.ASX:Quote,News) routes.

Qantas yesterday reported a 10 per cent fall in half-yearly net profit to $352 million, hit by soaring fuels costs and redundancy payouts.

But analysts said that stripping out abnormals, the 32 per cent increase in underlying profit to $401 million was pleasing.

Goldman Sachs JBWere is considering lifting its recommendation for the stock from neutral to buy.






"Earnings momentum is set to return in 2006/07 and 2007/08 as competitor capacity growth slows, allowing cost reductions to flow to profit rather than simply offset higher fuel costs," analyst Paul Ryan wrote in a report.

"Why then do we retain a neutral view? Because there are two issues to be addressed before we have sufficient confidence in our forecasts to turn positive.

"First, the outcome of the Federal Government aviation policy review (due next month) in regard to market access for foreign carriers, in particular to the Pacific route.

"Second, quantification of restructuring charges likely to be incurred in the second half of 2005/06 and the full year 2006/07 to deliver cost savings that are increasingly driven by labour reforms."

Credit Suisse analysts also said there was "significant upside to earnings", noting that Qantas' strategy of expanding its budget carrier Jetstar into Asia would deliver further returns.

The analysts said Qantas will beat its forecast for the full year.

Qantas expected its annual net profit to come in below 2004/05.

"We see a strong potential for Qantas to eclipse the underlying FY05 result, with even greater upside potential should oil remain below $US60 a barrel for the remainder of the financial year," they said in a note to clients.