moving up after brokers upgrade, chart looks...

moving up after brokers upgrade, chart looks good........mmm



ANALYSTS have upgraded their forecasts for Virgin Blue after Wednesday's results proved to be better than expected.

The airline surprised analysts by reporting an underlying first-half pre-tax profit of $75.6 million, up 34 per cent on the year-ago half and significantly ahead of many estimates.

The result included better than expected yields, as the carrier benefited from its wider exposure to the domestic market and lower than expected costs.

However, the airline retained its full-year guidance of $80m to $110m underlying pre-tax profit, as chief executive Brett Godfrey warned that the second half would not be as strong because of seasonal factors and increased competition.

The market has also reacted cautiously to the result, leaving the share price almost unchanged.

Admitting surprise at the strength of the result, Royal Bank of Scotland analysts said they were upgrading their full-year underlying pre-tax profit estimates by 12 per cent to $123.3m.

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The analysts, who maintained a buy recommendation, said they believed there was further upside potential from additional revenue from the federal government's travel tender and improved profitability from V Australia. They also increased their fiscal 2011 estimate by 31 per cent and 2021 by 20 per cent.

"VBA is well placed to benefit from the ongoing recovery in the domestic travel market and, with V Australia operations gaining traction, we still see upside from here," they said in a note.

UBS raised its recommendation to buy from neutral with a target price of 80c per share.

Deutsche Bank, which retained its buy recommendation on the stock as well as a price target and valuation of 85c per share, said it continued to favour Virgin as its preferred airline given the relative strength of the domestic market.

Analysts at Merrill Lynch, which also had a buy recommendation and price target of 85c per share, said the cautious guidance by Qantas and Virgin reflected some fragility in the demand recovery and plans by Tiger Airways to take market share.

Virgin's results came as Qantas announced it would boost capacity to Japan from July by deploying two-class Boeing 747-400s on five of seven daily services between Sydney and Tokyo. The jumbos replace smaller Airbus A330-200s and will add 115 seats per flight, including 26 in business class.