Qantas Airways Limited

Undervalued at Current Juncture: Qantas Airways Limited’s (ASX: QAN) shares tumbled 1.676% on October 08, 2018 at the back of negative market sentiment related to the rising fuel price environment. Recently, the group has updated the market about the progress on several transactions under its ongoing buy-back event. The group indicated to buy back shares with an aggregate total consideration of $332 million. As of now, the group has bought back a total of 1,77,91,853 shares via on-market trade for the total consideration of A$ 10,59,53,655.55. Besides this, the group has recorded growth in consolidated PAT at a CAGR of 20.7% during FY15-18. Improved domestic Operating margin by 140 bps resulted into 12.9% rise in underlying EBIT to $768 Mn during FY17-18 on the back of healthy demand in all parts in the domestic market and rise in unit price by 8% in FY18 over the prior year. In a bid to enhance market share, the company is on expansion mode, especially in the Asian market where traveling demand is being increased. However, the company is on track to achieve $500-600 million of EBIT by 2022 supported by increasing core Qantas Frequent Flyers, growing earnings mix from new businesses, and diversifying into new customer products across financial services, health, and wellness. In our view, QAN is performing well in generating strong unit revenue growth in the domestic business segment and managing its capital efficiently for shareholders.


Qantas Domestic Financial Metric (Source: Company Reports)

In the long run, we expect that the group has a solid outlook underpinned by growth in its loyalty business, continued transformation program, and disciplined financial framework approach which provides decent free cash flow along with strong balance sheet position. Meanwhile, the share price has fallen 11.15 percent in the past three months (as at October 05, 2018) and traded at reasonable PE level of 10.11x. The stock has a market capitalization of $9.48 Bn, a price-to-book value ratio of 2.33x and a beta of 0.97x as of October 08, 2018, displaying undervalued level at the current juncture and representing low-risk option among the peer group. Hence, we recommend a “BUY” on the stock (with dividend yield of 3%) at the current market price of $5.560.
 

Collins Foods Limited

Growth Intact with Decent Fundamentals: Collins Foods Limited’s (ASX: CKF) stock climbed up 3.566 percent on October 08, 2018 at the back of positive market sentiments in relation to rollout its Taco Bell brand in three Australian states which chart high growth trajectory ahead. In order to do this, the group has entered into a Development Agreement with Taco Bell that will govern the roll-out of more than 50 new Taco Bell restaurants across different states in Australia over the next three years. The roll-out will be funded from internally generated cash flows. The company is planning to open three more restaurants in Robina, North Lakes, and Cleveland by the end of the calendar year 2018. On the financial front, the Company has achieved a five-year compound annual growth (CAGR) in revenue and underlying EBITDA of 12.7% and 14.9% respectively to FY18 while underlying PAT recorded CAGR growth of 18.9 percent over the same period. Moreover, for FY18, the company delivered a 13.4% rise in the underlying PAT to $38.9 Mn, and 18.3% rise in owned restaurants to 271 numbers against the prior year.


Five Year Financial Highlights (Source: Company Reports)

Meanwhile, the share price has risen by 18.13 percent in the past three months as at October 05, 2018 and traded at reasonable PE level of 22.81x. In the last five years, the company has acquired 83 restaurants and built 31 new restaurants. It is expected that the company will build further 8 to 9 restaurants each year for next five years. The KFC Australia has also delivered consistently strong revenue and EBITDA growth. Based on foregoing and strong outlook backed by decent fundamentals, we give a “Buy” recommendation on the stock (with dividend yield of 2.64%) at the current market price of $6.680.


QAN and CKF Stock Prices with Moving Average (Source: Thomson Reuters)
 

Disclaimer
 
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.