Qantas earnings preview: key considerations before the Q3 update
We discuss some of the key things investors will likely be looking out for as part of Qantas’s third quarter trading update.
When is the airline set to report next?
Qantas (QAN) is expected to provide the market with a Q3 trading update this Thursday, 30 April, according to UBS.
Such a time-frame need be taken with a grain of salt, however, with Qantas itself noting that its third quarter trading update is yet to be confirmed (TBC).
By comparison, the airline's FY19 Q3 trading update was released on 7 May, 2019.
Qantas share price: can the rebound continue?
With global financial markets plunging into chaos off the back of the Covid-19 pandemic, airline and travel related stocks were some of the worst hit – as investors looked to de-risk at ‘any cost’.
Indeed, from February to mid-March, the Qantas share price collapsed – falling from an intraday high of $6.83 per share, on 20 February, to an intraday low of $2.03 per share, on 19 March – equating to a staggering 70% collapse in value.
Since that mid-March low however, the airline’s stock has rebounded sharply. At today’s open price of $3.41 per share – QAN has rebounded approximately ~67%.
Positively at least, Qantas, unlike many other ASX-listed companies, has also thus far resisted the need to raise fresh capital, though it has tapped the debt markets, to shore up its liquidity position.
Key things to look out for in the Q3
While Qantas’s third quarter (Q3) results will be unavoidably impacted by the Covid-19 pandemic, they are unlikely to reveal the full extent of the damage.
Importantly, while Qantas did make changes to its business operations in early March, the more radical changes came somewhat later. For instance, Qantas announced:
- A 60% reduction in domestic capacity until at least the end of May; on 17 March
- A 90% reduction in international capacity on 17 March, which turned into a complete suspension until at least the end of May; on 19 March
- That it would be standing down the majority of its 30,000 staff until at least the end of May; on 19 March
As such, although Qantas’s third quarter results would show some of the coronavirus impact, given that the Q3 covers 1 January to 31 March, 2020, it would not reveal the full extent of it.
As Morgan Stanley analysts recently mused:
'Until you can actually prove an outcome, we don't believe it is actually in the price and/or of diminished value.’
With such points in mind, a heavy focus will likely be placed on any forward facing comments and management commentary around the current situation/ outlook.
For reference, in H1 FY20 Qantas delivered record revenue of $9,464 million against underlying profits before tax (PBT) of $771 million.
Moreover, investors will also likely be eager to gain any further insight into how Qantas is planning on managing its dividend program going forward, after the airline noted that its most recent dividend would be deferred until September.
Qantas is regarded by many as a highly investor friendly company, given its liberal use of buy-backs in recent years.
Finally, with oil prices currently hovering around record lows, investors will likely be interested to see if Qantas has made any amendments to its FY20 fuel cost estimates.
In March, for example, the airline noted that 'a material drop in fuel price has provided a significant cost benefit in addition to the saving from lower consumption. The Group's fuel cost is now expected to be $3.74' billion.
How to trade Qantas
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For example, to buy (long) or sell (short) Qantas, follow these easy steps:
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