Qantas has delivered a very strong result for 1H16, highlighted by a record underlying profit, improved credit metrics and asset coverage, as well as strong liquidity and cash flow generation
Qantas has released its 1H16 results to the market, and a link to the announcement is available here. A summary of the results is provided below:
Source: Qantas
Key points
- Revenue was up 5% to $8.5bn, while underlying profit before tax increased by 151% to a record $921m at the top of the airline’s forecast range of $875m to $925m
- NPAT was up 234% to $688m
- A $446m contribution from reduced fuel costs was a major contributor to the improved results
- Operating cash flows almost doubled to $1.37bn, while free cashflow was up from $194m to $770m
- No interim dividend will be paid, however the company has announced an on-market share buyback of up to $500m as a means of redistributing funds to shareholders
- Qantas stated that its credit metrics held above the ‘investment grade’ targets (gross debt / adjusted EBITDA of less than 4.0x and funds from operations / net debt of over 45%) with further improvements in credit metrics expected through FY16
- Qantas’ unsecured bonds benefit from improved asset coverage following the refinancing of operating leased aircraft to unencumbered owned aircraft, with 50% of the group’s fleet (valued at over $3.5bn) now unencumbered
- Qantas also kept its strong short term liquidity, with $3.3bn in cash ($2.0bn) and undrawn facilities ($1.3bn)
We believe Qantas is well positioned to regain its investment grade credit rating from Moody’s, after being upgraded to investment grade by S&P on 17 November 2015.
The Qantas bonds are available at the following indicative yields to maturity:
- 2020 bond: 4.29%
- 2021 bond: 4.66%
- 2022 bond: 4.81%
Investors who purchased the Qantas bonds around 11 June 2014, when the 2021 bond was issued would have earned handsome annual returns as follows:
- 2020 maturity – 11.47%pa
- 2021 maturity – 13.33%pa
- 2022 maturity – 14.03%pa
Qantas still offers a solid return for a well performing credit but the big returns listed above, that were achieved during the turnaround years are a thing of the past.
Please contact your FIIG representative for further information and current pricing levels on the Qantas bonds. All bonds are available to retail and wholesale investors.