OUTLOOK - Australia's Qantas to post strong results, share buyback/dividend eyed

OUTLOOK - Australia's Qantas to post strong results, share buyback/dividend eyed

	Published : Tue, 14 Aug 2007 08:04 By : Agencies Print this Story

SYDNEY (Thomson Financial) - Australian flag carrier Qantas Airways Ltd is expected to report Thursday that robust growth in passenger demand boosted its net profit by about 60 percent for the fiscal year ended June, probably allowing it to return a sizeable amount of capital to shareholders.

Analysts are expecting Qantas to announce plans to return about two billion Australian dollars of

capital to shareholders through a share buyback or special dividend.

The market consensus forecast is for full-year net profit to come in at 766 million Australian dollars

compared to 479.5 million dollars Qantas reported for the previous year. Qantas's net profit slumped

30.4 percent in the year to June 2006 due to higher fuel prices that pushed up costs by almost 1.1 billion dollars.

Qantas's guidance suggests pretax profit of about 1.0 billion Australian dollars, up from last year's

671.2 million dollars, on continued strong demand and as yields offset cost-reduction targets which

have not been fully realized in the engineering and airport divisions.

The airline will make a 40-million-US dollar provision to cover a potential fine that may be issued by

US authorities over a freight price-fixing probe after fines were issued on other carriers.

For the 11 months to May, Qantas's group passenger numbers rose 7.1 percent from a year earlier, helping revenue seat factor rise three percentage points to 80 percent.

UBS Investment Research pegs Qantas's pretax profit at 1.0 billion Australian dollars on operating revenue of 15.2 billion dollars.

'We expect 550 million dollars in additional fuel costs to be more than offset by a 14 percent rise in passenger revenue from only three percent growth in capacity,' UBS said in a client note.

Generous reward

The improved financial results should allow Qantas to reward shareholders with a generous payout, analysts said.

Goldman Sachs, which expects the national carrier to report a net income of 709 million dollars, said

Qantas could declare a special dividend of 25 cents per share.

Analysts are expecting the airline to boost its capital management, restructuring initiatives and

outlook following the collapse on May 4 of the 11 billion dollar takeover offer by bidders led by

Macquarie Bank Ltd.

Since the collapse of the bid pitched at 5.45 dollars a share, Qantas's share price has defied

predictions by doomsayers and even touched a record 5.85 dollars on July 24, thanks to a strong operating environment and restructuring plans.

The carrier is planning to spin off its frequent flyer program (FFP) into a separately listed company and is considering to demerge some of its non-core operations.

Goldman Sachs said Qantas could realize a potential of five billion dollars in see-through value from restructuring non-airline assets via an FFP spin-off, improved freight earnings visibility and fleet financing restructure.

'We believe technology-driven unit-cost savings can initially outpace the impact of rising capacity growth on unit revenues, extending the cyclical improvement in Qantas's airline earnings into financial year 2009 versus consensus forecast for 2008 peak,' Goldman Sachs said.

Qantas shares closed up five cents or 0.9 percent at 5.40 dollars on Tuesday.

(1 US dollars = 1.19 Australian dollars)

yuinmunn.szetoh@thomson.com

---- by Sze Toh Yuin Munn ----

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