Qantas Airways Limited

Strong earnings quality: Qantas Airways Limited (ASX: QAN) provides passenger and freight air transportation services in Australia and internationally.The company has made an announcement related to its ongoing on-market buy-back eventhaving a total consideration of up to $305 million which would be acquired under the buyback. The remaining consideration to be paid for shares under the buy-back is up to $28,10,26,492.38. Till date, the company has bought back 42,52,884 shares at a consideration of $2,39,73,507.6.


Group Revenue (Source: Company Reports)

Group Domestic achieved record profit, up 1 per cent to $659 million, made up of record earnings from both Qantas and Jetstar.Qantas International’s revenue increased by almost 7 per cent to $3.7 billion but EBIT declined by 60 per cent to $90 million, primarily on the back of rapid rise in fuel costs (up by $219 million for the half).

The underlying profit before tax was $780 million while statutory profit was $735 million in 1H19. Compared to record result of last year, that’s a drop of $179 million at the underlying level – but that’s despite a $416 million increase in the fuel bill alone. For the business to recover much of the extra cost, particularly given how fast the oil price rose, demonstrates that the company is well-positioned.

Expected strong second half: The group is in a better position to post a strong second half performance and to completely recover its increased fuel cost by the end of this financial year. Forward bookings are up by 6.8% as at 31 December 2018, which includes the impact of Easter falling in Q4, reducing RASK growth for Q3. The company expects to generate significant net free cash flow during 2H FY 2019. However, FY19 fuel cost is expected to be $3.90 billion.

Driven by stable statutory EBITDA coupled with the strong quality of earnings and robust fundamentals of the company, we reiterate our “Buy” recommendation on the stock at the current market price of $5.640 per share (up 0.356% on 18 March 2019).
 

Syrah Resources Limited

Sales volume expected to exceed production volume: Syrah Resources Limited (ASX: SYR) has recently announced its interim updates for Q1 2019. The group continues to increase the Balama Graphite Operation in Mozambique and provides an update on its expected Q1 2019 graphite pricing, production and cash position.

The production of the company was approximately 45kt in line with the lower end of guidance range of 45kt - 50kt, which is more or less on track in Q1 2019. The company is continuing the production optimisation and cost management actions and expects the sales volumes to exceed its production volumes.


Cash Flow from Operations (Source: Company Reports)

What to Expect From SYR: The net cash outflow of the group is expected to be lower in Q2 2019 versus Q1 2019, as Balama forecast to be operating cash positive and BAM capital spend is lower. The sustaining capital expenditure in 2019 is forecasted to be in the range of US$10-US$15 million, including preparatory works for construction of Tailing Storage Facility (TSF) Cell 2.

The company will release the 2018 Annual Report on 29 March 2019 and Q1 2019 Quarterly Activities Report on 29 April 2019. The company’s stock performance remained volatile with its past three months return of -37.03% and previous one-month return at -19.10%. By considering the aforesaid facts and current trading level, we maintain our “Speculative Buy” rating on the stock at the current market price of A$1.060 per share (down 1.852% on 18 March 2019).
 

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