Tuesday 28 October 2014 by Legacy

Qantas good buying after profitable start to FY15

After a forgettable 2014 year, there are positive signs that Qantas is turning things around. Preliminary figures indicate that Qantas made an underlying profit before tax for the first quarter of financial year 2015 and is on track to deliver a profit in FY15

To say this is a strong turnaround from the $646m underlying loss and $2.8bn statutory loss in FY14 is an understatement. With the positive momentum in Qantas, now is the time to take advantage of the high yields on offer in the Qantas bonds.

It looks like the domestic capacity war between Qantas and Virgin, which caused so much financial pain for both carriers last year, has come to a halt. For the international business, capacity growth in 1H15 is expected to be below underlying demand growth for the first time in five years. And overall, at least $600m of benefits of the Qantas transformation program are expected to be realised in FY15.

As we have said for months, Qantas is a good value trade. The Qantas 2022 bonds (wholesale) are yielding 7%, while the 2021’s (wholesale) and 2020’s (retail) are yielding 6.93% and 6.52% respectively. Supply is good in each of these lines. The positive result and guidance from the company reaffirms this good value, and the relative value chart below highlights the returns compared to FIIG’s unrated issues.

All prices and yields are a guide only and subject to market availability. FIIG does not make a market in these securities.