Monday Qantas
Monday Qantas
Monday Qantas
2 Company Analysis
4 Financing Gap
5 Dividend Analysis
/01 Industry Analysis
1) Characteristics
2) Existing Competitors
1.1 Characteristics of the Australian Airline Industry
• market cap: AU$726m • market cap: AU$174.03m • market cap: NZ$1.93b • market cap: MYR3.81b
• Flag carrier airline of New Zealand • Malaysian low-cost airline
• Australian-based airline • Operates scheduled
• Operates scheduled flights to 20 • Operates scheduled domestic
operates both domestic regional services
domestic and 32 international
and international flights and international flights to
destinations in 20 countries,
more than 165 destinations
primarily around and within the
spanning 25 countries
Pacific Rim
• corporate loss of $2.84 billion Depreciation Charge and Abnormals ($AU Million)
• government refuse to guarantee its debt 3,500
3,330
2,500
2,000
• transformation plan 1,500 1,450
1,325 1,351
• $2B cost saving by FY2017 1,199
1,000
1,249
226% FY2014
200%
• surge in gearing ratio up to 226%
150%
161%
• soaring oil prices
121% • heightened competition from other
111%
100%
86%
95% 95% 96% 98% 102% premier carriers
83% 82%
73% 77%
0.50
100
66.95%
-100
-0.50
60.00% 4000
3704 -200
3496 3398 -1.00
55.77% -300
55.00% 30013000
2829
-1.50 -1.55-400
-442
50.00% 2000
FY2010 FY2011 FY2012 FY2013 FY2014 -2.00 -500
Quick ratio Cash (AU$) Current liability Interest Coverage Ratio EBIT (AU$) Interest expense (AU$)
6.0
• Capability of Qantas paying its debt
5.0
0.0
FY2010 FY2011 FY2012 FY2013 FY2014 FY2015E FY2016E FY2017E
Fund From Operation (FFO) To Net Debt Ratio FFO to Net Debt
100.0%
• Ability of Qantas to pay off its debt using NOI alone 80.0%
78.3%
0.0%
FY2012 FY2013 FY2014 FY2015E
-20.0%
Target -40.0%
-43.2%
• Return to investing grade status -60.0%
3.3 Free Cash Flow Forecasting
FFCF
• Qantas' ability to generate cash 2000
1500
• Positive free cash flow from 2015 1000
0
2015 2016 2017
dividends or reducing debt.
• The signal of HEALTHY company FFCF
2015 2016 2017
Revenue
01 Operating Expense
02 Debt
03
Number of Passengers Cost of Labour for Airlines (around 22%) Short-term Debt
Reputation of Qantas Cost of Fuel for Airlines (around 21%) Long-term Debt
High load factor vs Low load factor (PLF) Other Expense
Historical Forecast
(AU$ million, June year end) FY2010 FY2011 FY2012 FY2013 FY2014 FY2015E FY2016E FY2017E
Trial Assets 19,910 20,858 21,178 20,200 17,318 16,463 15,722 15,834
Trail Liabilities + Owners' Equity 19,910 20,858 21,178 20,200 17,318 16,730 17,157 17,888
Plug 0 0 0 0 0 -267 -1,435 -2,054
Gearing Ratio
250%
226%
Reasons to issue:
a) Shareholders’ expectation:
“We want them. We should get them. You’ve got $4 billion in cash that’s our money. We should get a dividend next
year.”
FY2015 results:
$2.9b Cash
$1b Undrawn facilities
$2b Operating cash flow
b) Signaling:
“The Transformation Plan worked well, and we’re at a point now where we think we’ve structurally changed this
business and it can now support ongoing dividends.”
Reasons to retain:
a) More financial flexibility:
- the capital requirements of strategic actions to return to investment grade status were contrary to
any immediate resumption of capital returns and particularly to sustained dividend payment
- the Transformation Plan placed targets in firm performance and structure, including network and
fleet optimization improvements
- they also made commitment to investment in aircraft, lounges, technology and service
5.2 Should Qantas issue a dividend this year?
Reasons to retain:
c) High volatility in airline industry:
- High uncertainty in the airline industry and Australia market for travelers makes it difficult for
management to offer stability and surety of future returns to shareholders
- Equity: limited amount of foreign capital it could raise, largely depended on the domestic investors
- Debt: downgraded to the level of junk grade stock in FY2014, Australian government also rejected
to publicly guarantee Qantas’s debt
5.3 Recommendation
Do not issue a regular dividend
- Franking credit
balance: $84m
- Shares
outstanding:
2.192b
- Franked
dividend: $196m
($0.01 per share)
X Regular Dividend X Special Dividend or X Stock Split or DRP
Share Buyback
- being cautious on giving long-term commitment under the high uncertainty and unstable firm’s
future earnings
- unsustainable generation of new franking credits in the next few years
- unfranked dividends were significantly less attractive in Australian market
5.3 Recommendation
- Stock split: theoretical increase in price after the split is not guaranteed; Qantas’s share price
was not very high and its liquidity was not a problem
- DRP: franking credits are dealt with in exactly the same manner with cash dividend; depleted
franking credit balance of only $84 million in FY2015
5.3 Recommendation
Conclusion: