Originally Posted by
Roger
Okay some preliminary calculations. Key point is the company has stated they are on track to EXCEED $400m before tax in the first half and that's BEFORE the positive contribution expected from Virgin.
I have assumed $430m inclusive of the Virgin contribution which is up ~ 100% on last year's $216m.
Last year with the route expansion into Singapore in the second half AIR earned just 43% of its profit in the first half. This year we have two new routes and the company is extremely bullish on sales demand on those routes and is on record as saying they'll be profitable from day 1.
Further, in this first quarter they still had some residual fuel futures contracts to work through at historical and less favourable rates. This won't be repeated in this quarter or the second half.
Nobody can reliably predict where fuel costs and exchange rates will go but based on the current rates for same being maintained this year I see no reason why with the two new routes and greater demand in the peak summer and autum seasons why the company won't make a very similar percentage of its annual profit for FY16, (57%), in the second half as it did last year.
On this basis my preliminary estimate for FY16 net profit before tax is thus $1b ($430 / 0.43) translating after full provision for company tax at 28%, (they seldom pay the full tax rate for a range of taxation reasons) to net profit after tax of $720m and based on 1,121m shares on issue this gives 64.2 cps.
I know that figure seems outrageously high but that's what the company is implicitly guiding towards based on best known currently available information.
Further, in FY17 they'll enjoy a full 12 months of the new routes (7 months this year) both international and increased capacity and frequency on domestic and with low international economic growth I see the IMF predicting we'll still have oil at $55 barrel during calendar year 2017 so assuming the currency and oil are stable around their present level's I see no visible reason at this stage why we can't enjoy 60 cps + EPS in FY17.
Going forward from there and assuming oil reverts back to $80-$100 barrel and the currency around 70 cents I see EPS of 50 cps being sustainable. Apply whatever PE you like but I'll use 11 so I can see the stock over $5 within two years when the market finally wakes up to what a massive cash flow machine this company is. $1b cash flow last year, nearly $1 a share !!
On this basis I estimate the shares are trading on a forward PE of only 4.3 for FY16. In my experience when companies are trading on ludicrously low PE's a lot of money can be made. Sure there are risks to the downside and upside but this is my best estimate of EPS at this stage.
DYOR but for what its worth I have tripled the size of my shareholding since yesterday's meeting. I think this is the stand-out opportunity on the market and the opportunities for special divvies in the years ahead along with capital price appreciation make this a compelling investment opportunity. I think the stock should currently be trading at close to or in excess of where QAN is presently priced.
I've been investing for about 30 years now and by my reckoning you'd be doing well to find a company that's better managed than this one. Directors and senior management are doing a stellar job and we are extremely well served by them. Its a true mark of the directors professionalism that despite the company growing profits strongly over the last three years and looking to approximately double last year's record profit this year they refused to take any increase in directors fees, simply enlarged the pool slightly for additional directors in the future. This company didn't win the Deloiite company of the year last year without very sound reasons, likewise Tony Carter Chair person of the year.
The company is extremely bullish on their outlook and so am I.
I'll post the other questions and answers later when I have more time.