Where next as Qantas completes $1.36 billion institutional placement?

We examine the details behind the airline's just completed institutional placement as well as look at how two top investment banks have changed their thinking on Qantas in the last couple of days.

Last Thursday, Australia's flagship carrier – Qantas (QAN) – announced an ambitious three-year plan to rebuild the airline. To achieve this, the airline said it would be tapping the market for $1.9 billion in fresh capital – made up of a $1,360 million institutional placement and a $500 million share purchase plan (SPP).

On Friday, Qantas announced the completion of the $1,360 million placement and noted that the raise was met by strong institutional demand, with 94% of the placement shares allotted to existing shareholders.

The SPP booklet is set to be released to eligible shareholders on 25 June.

Mind you, while there may have been strong demand from institutional investors, when the stock was lifted from its trading halt, the Qantas (QAN) share price dove, finishing out last Friday’s session down 9.069% at $3.810 per share.

Qantas continued to trend lower on Monday, with the stock down close to 5%, at $3.620 per share as of 1:11PM (AEDT).

In response to that announcement, Qantas CEO, Alan Joyce said:

'The fact that there was significant demand for this offer shows clear support for our recovery place and confidence in the fundamentals of this business.'

Mr Joyce finished by saying that 'The plan involves some difficult decisions but we are extremely well positioned to get through this crisis and start growing again on the other side.'

As a result of the raise the Group’s issued capital would expand by around 25%.

The analyst outlook: where next?

In response to the raise, UBS analysts reiterated their Buy rating on the airline, but cut their price target from $5.50 per share to $4.60 per share, as a result of the share count increase. Even so, UBS analysts noted that 'the raising should remove an overhang for some investors that were concerned with the outlook for gearing.'

Citi analysts, by comparison appear less confident in the outlook for Qantas: here, while the investment bank raised their price target from $3.70 per share to $4.60 per share, Citi analysts assigned the stock a Neutral rating with a High Risk disclaimer.

Indeed, although Citi’s price target implies potential upside from current price levels, the investment bank warned that ‘the longer-term outlook remains considerably uncertain and extremely difficult to forecast. We expect the path to recovery will be volatile and could lead to unexpected financial outcomes.’

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