QAN 0.75% $6.71 qantas airways limited

some fundamental calcs.

  1. 1,745 Posts.
    Did some quick calcs. on the closing price of $3.04.

    Using a cost of capital of 5.8% earnings per share works out to about 18 cents per share (29 cents last year and 21 cents in the first six months) and a market expectation of earnings at about 281m for the year(428m last year and 352m half year). In short the market has put an expectation that QAN will show a loss of 71m in the later half. What is interesting is that at $3.20 the market had an expectation of 19 cents per share and 60 million shares were traded over that one cent per share. PE of about 16.8.

    Last year's revenue was $11.3bn and based on these calcs. market expects revenues around $7.5bn or a decline of about 34%. Consider that the half yearly report had a revenue of $5.8bn this means that the company is expected to earn $1.7bn in the later half (or about 29% of the first half).

    If this scenario is right then the primary issue for Mr. Dixon and his team will be to come up with a short to medium fix to manage the expenses and idle planes. He will need to keep expenses down to about $6.4bn (last year $10.6bn.) or a decline of about 39%. Need to consider that first half expenses were $5.4bn and that means he will need to get expenses down to about $.9bn - a tall order in the short term. Unfortunately, the staff will be severly hit.

    SARS hit in sometime in March and that is about 3 months into the half year and after the holiday season. The company will have to manage a difficult situation for the last four months.

    Based on this argument I think that the EPS will be higher than the expected 0.18 cents. Frankly, I think that the issue is serious but I also think that the market has over reacted and I suspect that hedge funds made a killing on the way down and they will also jump in on the way up.

    I bought at $3.05.

    This is only my opinion.

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