At what price would you consider Qantas shares worth buying?
difficult question to answer, some comments:
(a) Qantas is an airline company, therefore definately not a share to 'buy and hold', its part cyclical and part 'popularity' play. (I need both these factors, and buying at the low or near low of both).
(b) NTA is $2.45 so theoretically buying somewhere below this price should be 'safe' after allowing for additional costs to come out of the NTA. ie NTA represents the net asset value, hence roughly the breakup value, if everything is flogged (but you would have additional costs, eg redundancies, lease obligations etc that need to be deducted, what is the 'price of these costs???') On the 'plus side' what is the value of the Qantas frequent flyer program??? Obviously if broken up, this wouldnt be used for Qantas but the program would still have value to another airline because of its network.
(c) Qantas generates good cash flow and has always generated good cashflow. The underlying company is profitable,
but this cash flow is not free cash flow. Aircrafts are expensive and need replacing, if one looks back through 10 years of financial history we can see good cash flow, but every year heavy capital expenditure (hence why airlines are not good long term investments). So effectively the money comes in and it goes out the door again.
(d) we need to see the outcome of this dispute.
Its very important that Qantas wins this battle, otherwise it will just be death by a thousand cuts. I am not worried about the short term customer impact, customers can be wooed back, but if the cost structure is ineffecient, it doesnt matter if one has customers or not, because they cant make a quid from it.
(e) when reviewing the 'value' of qantas, the AU$ has a huge impact. High AU$ is good for jet fuel, international travel, but all the airlines that move out of australia get this benefit. In my opinion the 'value' comes from a lower AU$ where this is less labour cost pressure (as overseas labour costs in US$ increase).
The
best situation is if everything is resolved in qantas favour, but the market focuses on the short term impact of customer anger and belts the share price down further. This would enable someone with a longer term investment horizon to invest with more confidence, because the share price will recover as customers recover.
On the other hand, how many other people are thinking like me, and what will be the outcome on the shares.
So another opportunity might be to buy in the darkest of days, when the stock has few supporters. The issues have not been resolved, customers are angry.
Share price is likely to tank further because of increased risk.
On this second situation i need a bigger discount, maybe around $1.20 (big enough discount to NTA), but i couldnt go heavy, i would need to be prepared to dollar average, and i still would face the issue of unkown risk.
Sorry if i cant provide exact 'pricing' that i would buy, but hopefullyy it presents some insights into how i value things.
I am always looking at risk vs return, and in the current environment both risk and return are moving around.
