Qantas wins earnings upgrade for $377m profit result Steve Creedy, Aviation writer From: The Australian August 14, 2010 12:00AM
ANALYSTS yesterday rewarded Qantas's results with earnings upgrades that predict underlying pre-tax profit will double this financial year.
The airline received a general thumbs-up from brokers after its $377 million annual pre-tax profit exceeded consensus estimates and was accompanied by a generally positive outlook.
While Qantas executives did not provide figures and expressed caution about volatility in areas such as fuel and foreign exchange, they predicted rising yields and revenues and said the first half of fiscal 2011 would be materially stronger than last financial year's first half.
The buoyant outlook kept Qantas as a buy/outperform recommendation and saw earnings forecasts raised as much as 14.7 per cent.
"We expect a doubling of profits in FY11 to $800m from the roll-forward of yields recovery so far achieved, ongoing recovery and continued margin enhancement from lower cost," analysts at UBS said as they increased their profit before tax (PBT) forecast by 7 per cent.
"Yields remain the key driver in FY11 and we expect plus-5 per cent in international and flat in domestic (yields)."
Deutsche Bank increased its price target from $2.65 to $2.90 and raised its fiscal 2011 pre-tax profit forecast 14.7 per cent from $683m to $783.4m on the back of improved passenger numbers, capacity and yield.
"We continue to be encouraged by the apparent momentum associated with premium travel recovery," Deutsche said.
"Consistent with other recent airlines results, Qantas has reported strong yield recovery in some segments. Management reported 12 per cent yield improvement in international in the last quarter."
Deutsche said key risks included the success of the QFuture cost program, fuel price variations, market share loss, capacity growth and union problems.
Goldman Sachs, which boosted its fiscal 2011 pre-tax profit forecast 1.5 per cent to $732m and raised its price target 1c to $3.46.
It also expected earnings growth to be driven by a combination of cost savings and yield improvements associated with the ongoing demand in premium travel.
But there was a note of caution from Macquarie Equities about the level of capacity growth and its potential impact on yields.
Qantas said it expected to increase capacity 9.6 per cent, while Virgin Blue has yet to reveal the results of a system-wide network review.
Analysts hope to get an insight into Virgin's capacity plans at its results on August 26.
"Our major concern is that should Virgin Blue or Tiger commit to strong capacity growth in the Australian market, Qantas will follow suite with industry profitability taking another hit," Macquarie analysts said.
Nonetheless, Macquarie increased its underlying PBT forecast for this financial year from $640m to $693m and its target share price from $2.76 to $3.02.
