Treasure Chest: Qantas Airways

This story features QANTAS AIRWAYS LIMITED. For more info SHARE ANALYSIS: QAN

FNArena’s Treasure Chest reports on money making ideas from stockbrokers and other experts.

By Danielle Ecuyer

Whose Idea Is It?

Evans and Partners

The subject: 

Qantas Airways ((QAN))

More info:

Evans and Partners has nominated Qantas Airways as one of its preferred dividend plays.

Qantas has not paid a dividend since 2019 and management’s announcement to re-start dividend payments in FY25 is being embraced by some brokers more than others.

Several brokers outside of daily monitoring by FNArena have been providing upbeat dividend forecasts for the airline.

Evans and Partners is the standout with a forecast dividend per share of 40c in FY25, 45c in FY26 and 50c in FY27. 

The broker’s thesis is based upon “The long term FY30 target for Loyalty to generate EBIT of $800m-$1b remains the objective. Evans and Partners forecast EBIT of $826m in FY30.”

Evans and Partners has a $6.85 target price.

Morgans proposes a different perspective. Post a management meeting, the analyst highlights FY24 is a transitional year for the company.

It is envisaged Qantas will benefit from upgrades in earnings estimates over FY25 from improved operating metrics, including more efficient aircraft and freight headwinds moving to tailwinds.

Morgans believe cash flows will surprise and come in stronger than consensus estimates which are “likely assuming a material unwind in revenue received in advance (RRIA) and too high cash tax” for FY25, despite a capex program of -$3.7bn – $3.9bn.

Morgans has a $7 target price and a forecast dividend per share of 15c and 17c for FY25 and FY26, respectively. This broker has an Add rating for the airline.

Goldmans Sachs has Qantas on its APAC conviction list with a Buy rating and an $8.05 target price.

This broker forecasts profit before tax will come in 51% above pre covid levels in FY24 and 61% higher in FY25, with the uplift reflecting -$1bn in cost outs.

Over a future three-year period, the analyst anticipates Qantas gearing, net debt/EBITDA will remain within target, including FY25-FY27 cumulative capex of -$11.3bn, which is in line with consensus.

Management will also pay out a $1.6bn capital return.

Goldmans Sachs is forecasting a 30c dividend per share in FY25 and FY26.

Another bullish broker is Jarden, with a recently upgraded target price to $7.30 from $7 in mid-June.

“In our view, the announcement of the recommencement of ‘base dividends’ for Qantas in FY25E will be a positive catalyst for the share price, all else being equal.”

The analyst is forecasting a 25.3c and 32.8c dividend per share in FY25 and FY26, respectively and emphasises the concerns on capex are unwarranted, due to potential delays to the Boeing and Airbus aircraft deliveries.

Jarden envisages improved margins for the domestic business and cost benefits from Project Winton fleet (the replacement of the aging domestic Boeing fleet with Airbus aircraft) will underwrite a greater premium mix per plane.

This broker forecasts up to 200bps of EBITDA improvement from the domestic operations as the fleet is modernised. Jarden highlights its EPS forecasts are 5% above consensus in FY25 and 9% above in FY26.

The broker believes Qantas’ balance sheet has the capacity to support the heavy capex program.

Daily monitored brokers have an average price target of $6.725 and a forecast average 19.9c dividend in FY25 which equates at the current price of $6.21 to a 3.2% fully franked yield.

The yield on offer rises to 4.83% in case the Qantas board decides to payout 30c next year, and to 6.44% if Evans and Partners’ 40c forecast materialises.

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