Following three years of losses, Qantas is back in the black - with a record $1.4 billion profit

It's clear skies and following winds for Australia's national carrier. Qantas (ASX: QAN) has recovered from a $1.2 billion loss in the prior corresponding period to a $1.4 billion profit in H123. Shareholders, meanwhile, are set to be rewarded in the form of a buy back of up to $500 million.     

 “This is a huge turnaround considering the massive losses we were facing just 12 months ago," Qantas Group CEO Alan Joyce said of the results. 

“When we restructured the business at the start of COVID, it was to make sure we could bounce back quickly when travel returned. That’s effectively what’s happened, but it’s the strength of the demand that has driven such a strong result."

At the time of writing, the stock is down 7%, which according to Kelli Meagher from Sage Capital is a "mystery." The market broadly expected the result and any new information provided "was net positive". A case of profit-taking in a tough economic environment, perhaps. 

I sat down with Kelli to run through the results and the outlook for the Flying Kangaroo and the sector writ large. 

Note: The interview took place Thursday 23 February, 2023.

Qantas (ASX: QAN) Full-year Key Results

• Underlying profit before tax of $1.43 billion vs expectations of $1.45 billion
  
• NPAT of $1 billion vs expectations of $1.02 billion
• Earnings per share of 53.9 cents
• Net debt of $2.4 billion, down from $3.9 billion
• Cash on balance sheet of $4.1 billion
• On-market share buy-back of up to $500 million announced

Underlying EBIT by segment

• Domestic: $785 million vs expectations of $683.8 million
• International: $464 million vs expectations of $474.2 million
• Jetstar A$177 million vs expectations of $245.1 million
• Loyalty A$220 million vs expectations of $212.5 million

Key company data for QAN

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In one sentence, what was the key takeaway from this result?

The key takeaway is that demand is still strong, and consumer intention to travel is high - even higher than pre-COVID. And they upgraded their targets and announced a buy-back. 

What was the market’s reaction to this result? In your view, was it an overreaction, an under-reaction or appropriate?

The stock is down 7% which is a mystery given that most of the result was known and the new news in the result was net positive - demand strong, not seeing cracks in the consumer, and the targets they set for 2024 are a minimum. 

Were there any major surprises in this result that you think investors should be aware of?

There weren't any major surprises at all. The buy back was a little higher than expected, the capex guidance was a little higher, but generally no surprises at all.

Would you buy, hold or sell QAN on the back of these results?

Rating: BUY

I would be a buyer, especially with the stock down 7% and potentially looking at an upgrade down the track. 

What’s your outlook on QAN and its sector over the year ahead? Are there any risks for QAN and its sector that investors should be aware of?

At the moment it looks like there's no stopping the consumer and the studies Qantas and others have done show that the intention to travel is very high and so the only risk is if that changes; the consumer all of a sudden decides to de-prioritise travel and pull back on spending. But there's no sign that is happening or will happen. 

There are also benefiting from the cost-out. They've done a lot of restructuring internally [since COVID] so there are costs coming out permanently that are COVID costs, such as $400m that will not be there going forward. And then in terms of their basic operations, they've done a lot of efficiency work and taking costs out permanently. So as demand continues to increase, they're fundamentally in a stronger position with stronger margins. 

From 1-5, where 1 is cheap and 5 is expensive, how much value are you seeing in the market right now? Are you excited or are you cautious on the market in general?

Rating: 4

There are some pockets of value, and Qantas is a case in point. Given where bond yields are, the market overall is looking a little expensive. So I'd say a four. 

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