Qantas Airways Limited

QAN Details

Q3FY19 Revenue Increased By 2.3% To $4.4 Bn:Qantas Airways Limited (ASX: QAN) is engaged in the operation of international and domestic air transportation services. In its third quarter FY19 report, QAN highlighted that the revenue increased by 2.3% on pcp to $4.4 billion. QAN’s overall market share of corporate travel revenue increased by 2.5% in the quarter, touching the highest level in three years, despite the net reduction in the capacity. Market share of small-to-medium business travel continued to grow, assisted by initiatives from Qantas Loyalty.

Group International Unit Revenue increased by 6.2%, with a particularly decent performance by Qantas International.Network changes drove revenue performance, as did competitor capacity reductions on long haul routes in response to higher fuel costs, which in-turn led to increased market share for Qantas International.

 
Q3 FY19 Key Metrics (Source: Company Reports)

What to expect:As per the report, QAN announced Sydney-San Francisco as the next Qantas Dreamliner route from December 2019, replacing the less fuel efficient carrier 747. It signed a three-year wet-lease with Atlas Air to upgrade the two existing 747-400 freighters operated for Qantas freight with two 747-8F aircraft from July 2019. These would be delivering 20% more carrying capacity and better operating efficiency. New Jetstar route from Gold Coast to Seoul, Korea and a new Qantas seasonal route from Sydney to Sapporo, Japan, is expected to start by December 2019.

Stock Recommendation:Its gross margin, EBITDA margin and net margin for H1FY19 stood at 54.1%, 18.4% and 5.4%, better than the industry median of 41.1%, 16.9% and 4.8%, respectively, which implies decent fundamentals of the company. Its ROE for H1FY19 stood at 13.6%, better than the industry median of 4.1%, which implies the company delivered decent returns to its shareholders than its peer group. On the valuation front, its EV/EBITDA and Price to Cash Flow multiple for TTM stand at 3.7x and 3.9x, lower than the industry median of 5.2x and 5.2x, respectively, indicating an undervalued position at the current juncture. Currently, the stock istrading below the average of 52 weeks high and low price of $5.180 and $6.920, respectively, proffering a decent opportunity for accumulation. Hence, considering the aforesaid facts and current trading level, we recommend a “Buy” rating on the stock at the current market price of $5.830 (up 0.344% on July 30, 2019).

 
QAN Daily Chart (Source: Thomson Reuters)
 

Seven Group Holdings Limited

SVW Details

Overvalued at Current Juncture:Seven Group Holdings Limited (ASX: SVW), in its H1FY19 report, highlighted that its trading revenue increased by 45% on pcp to $2 Bn. This strong result can be attributed to the breadth, and operational focus, of its diverse businesses that are leveraging the strength of the mining production cycle, infrastructure investment and East Coast gas fundamentals. Its underlying earnings before interest and tax (EBIT) increased by 68% on pcp to $375 million. Its underlying net profit after tax (NPAT) increased by 61% on pcp to $257 million. Its underlying earnings per share (EPS) increased by 59%, reflecting strong operational performance coupled with effective capital management.


H1FY19 Key Metrics (Source: Company Reports)

What to expect: On improved business performance, the group now expects FY19 underlying EBIT to be up by around 40% on FY18 underlying EBIT on a continuing operations basis, which for the avoidance of doubt was $496.9 million.

Stock Recommendation:The company has ~339.36 million shares outstanding with the market cap of circa $6.31 million and a beta of 1.61x (5-Year, Monthly). The company’s gross margin and EBITDA margin for H1FY19 stood at 49.6% and 17.2%, better than the result in H1FY18 at 42.9% and 14%, respectively. On the valuation front, its EV/Sales and EV/EBITDA multiple on TTM basis stand at 2.0x and 9.1x, higher than the industry median of 1.0x and 6.2x, respectively, indicating overvalued position at the current juncture. Currently, the stock is trading slightly towards its 52-week higher levels of $23.875 with PE multiple of 19.23x. Hence, considering the aforesaid facts and current trading level, we give an “Expensive” rating on the stock at the current market price of $18.550 per share (down 0.215% on July 30, 2019), and suggest to investors that they should wait for a few more trading sessions to get the better entry levels.

 
SVW Daily Chart (Source: Thomson Reuters)

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