Qantas share price falls 4% despite huge profits and major share buy-back

The Flying Kangaroo is descending on Thursday following the release of its half-year results…

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Key points

  • Qantas shares are falling following the release of its half-year results
  • That's despite the airline operator reporting a $1.4 billion profit
  • Not even a $500 million on-market share buy-back has been able to keep its shares from descending

The Qantas Airways Limited (ASX: QAN) share price has failed to take off on Thursday.

In morning trade, the airline operator's shares are down almost 4% to $6.22.

Why is the Qantas share price falling?

Investors have been selling down the Qantas share price on Thursday in response to the Flying Kangaroo's half-year results release.

For the six months ended 31 December, Qantas reported a 222% increase in revenue to $9.9 billion and an underlying profit before tax of $1.43 billion. The latter compares very favourably to loss of $1.3 billion in the prior corresponding period.

In light of this strong form, its much-improved balance sheet, and positive outlook, Qantas has decided to return up to $500 million to shareholders via an on-market share buy-back.

Broker response

Goldman Sachs has taken a look at the result and has given its verdict. It notes that the company's profit was a touch short of its expectations, which may explain some of the weakness in the Qantas share price today. It commented:

QAN adjusted PBT of $1,428m was 1% below GSe and 1% ahead of consensus (this compared with guidance of $1,350-1,450m. Revenues were 3% higher than expected, offset by higher than expected ex-Fuel opex and D&A. Group capacity was 1% below our forecasts, more than offset by a 3% unit revenue beat. Adjusted Net Debt was $2,398, which was 1% below our estimates and well below the $3.9-4.8bn revised target range (struck at 2.0-2.5x EBITDA assuming a 10% ROIC and was $4.2-5.2bn in August 2022).

Another item that caught the eye of Goldman Sachs was Qantas' capex spending. It highlights that this is ramping up quicker than it was expecting. Its analysts add:

FY23 Capex $2.6-2.7bn from (previously $2.2-2.3bn; GSe $2.3bn; Consensus $2.3bn), reflecting re-phasing of existing commitments for improved commercial terms. FY24 capex of expected to be $3-3.2bn vs GSe of $2.8bn (although we note that our FY24 ND was ~$600m below the bottom of the revised target range) and consensus of $3bn.

Nevertheless, as things stand, the broker has a conviction buy rating and $8.20 price target on Qantas' shares. Though, this could change once Goldman Sachs has updated its financial model.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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