Category: Stock Market

At lunch on Monday the S&P/ASX 200 Index (ASX: XJO) is back on form and storming higher. At the time of writing, the benchmark index is up 1.5% to 6,774.9 points.

Here’s what is happening on the market today:

Tech shares rebound

The tech sector is rebounding after a positive night of trade on Wall Street’s Nasdaq index on Friday night. The likes of Afterpay Ltd (ASX: APT) and Zip Co Ltd (ASX: Z1P) are recording notably strong gains are helping to drive the S&P/ASX All Technology Index (ASX: XTX) 2.6% higher at lunch. On Friday night the tech-focused Nasdaq index rose 0.5%.

Fortescue share price tumbles

The Fortescue Metals Group Limited (ASX: FMG) share price has come under pressure on Monday. However, the pullback in the Fortescue share price has nothing to do with its performance and everything to do with its dividend. This morning the iron ore giant’s shares traded ex-dividend for its fully franked interim dividend of $1.47 per share. Eligible shareholders can look forward to receiving this dividend on 24 March.

Kogan rated as a buy

The Kogan.com Ltd (ASX: KGN) share price is rebounding from last week’s 22% decline. Investors have been buying the ecommerce company’s shares after analysts at Credit Suisse retained their outperform rating and trimmed the price target on them slightly to $20.85. The broker believes the company is well-placed for growth over the medium term.

Best and worst ASX 200 performers

The Austal Limited (ASX: ASB) share price the best performer on the ASX 200 today with a 6.5% gain. This follows the announcement of the delivery of a new vessel. The worst performer on the index has been the Fortescue share price with a 6% decline. This is due to its shares trading ex-dividend this morning.

More reading

• BNPL providers like Afterpay (ASX:APT) set for increased regulation
• Will the Afterpay (ASX:APT) share price go higher in 2021? Here’s what Goldman Sachs thinks.
• The Kogan.com (ASX:KGN) share price sank 22% in February: Time to buy?
• Why the Fortescue (ASX:FMG) share price is sinking 6% today
• Here’s why the Austal (ASX:ASB) share price is storming 6% higher

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Austal Limited, Kogan.com ltd, and ZIPCOLTD FPO. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Kogan.com ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post ASX 200 up 1.5%: Afterpay & Zip jump, Fortescue tumbles appeared first on The Motley Fool Australia.

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Ever since its inception, critics of the buy now, pay later (BNPL) concept have called for ‘more regulation’ for BNPL providers like Afterpay Ltd (ASX: APT).

Traditional credit providers, such as the ASX banks, have long been subject to strenuous rules and regulation in Australia. These are mostly designed to protect consumers from usurious practices and the like.

But the BNPL sector has largely escaped this kind of oversight. That’s mainly because BNPL products don’t tend to charge interest on their consumer’s debt. That makes it hard to call them ‘credit providers’. That’s despite the fact that BNPL companies help their customers spend money that isn’t theirs.

All of this has resulted in BNPL inhabiting a ‘grey area’ of financial laws and regulations. But the surge in popularity that BNPL services have enjoyed in recent years (particularly over the past year) has lead to growing calls for this grey area to be coloured in.

And that seems to be what is developing today. According to a news.com.au report today, Australia will become the first country in the world to implement industry standards for the sector. These standards will be designed to ensure safe practices and “name and shame dodgy lenders”.

BNPL gets deeper oversight

The new code, which the Australian Finance Industry Association (AFIA) drafted, is reportedly set to come into effect on Monday.

It will force companies like Afterpay, Zip Co Ltd (ASX: Z1P), and Commonwealth Bank of Australia‘s (ASX: CBA) Klarna to adhere to new rules. These include late payment caps for customers and compulsory financial/credit checks on customers before they make a purchase. Providers will also be prohibited from allowing people under the age of 18 to use a BNPL service.

It also aims to prevent any lender from placing additional pressure on someone in financial hardship. Companies will also be forced to take some partial payment upfront before offering a service.

According to the report, BNPL disputes under the code will be adjudicated by the Australian Financial Complaints Authority. A designated committee will be looking to name and shame companies providing shoddy lending to customers.

The report quotes AFIA chief executive Diane Tate, who had this to say on the new code:

The growth and diversity of the products and services enhances consumer choice… It brings to life the concept that innovation and competition are for the everyday person and that this can be achieved while codifying strong consumer protections.

BNPL shares like Afterpay are responding well in trading this morning. The Afterpay share price is up 4.6% at the time of writing. Zip shares are doing even better, up 5.77%.

More reading

• ASX 200 up 1.5%: Afterpay & Zip jump, Fortescue tumbles
• Will the Afterpay (ASX:APT) share price go higher in 2021? Here’s what Goldman Sachs thinks.
• ASX 200 Weekly Wrap: Friday carnage ruins last week of ASX earnings
• These were the best performing ASX 200 shares in February
• 3 of the best ASX 200 results from last week

Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Cimic Group Ltd (ASX: CIM) share price is edging slightly higher today following a contract award announcement.

In mid-morning trade, the engineering company’s shares are up 0.04% to $21.30.

What’s driving the Cimic share price today?

In its release, Cimic advised its subsidiaries, UGL and CPB Contractors, have entered into an early contractor involvement (ECI) contract with CuString Pty Ltd for works related to the Copperstring 2.0 project.

Based in Townsville, Queensland, CuString is a privately-owned company that delivers energy infrastructure needs to North Queensland.

The Copperstring 2.0 project is a 1,100km high-voltage transmission line that will stretch across Townsville to communities in north-west Queensland. The project is expected to have a capital expenditure of around $1.5 billion and employ 750 people during the construction phase. Once completed, electricity will be supplied to existing customers and open new opportunities for industrial facilities and agriculture projects.

Under the proposed agreement, UGL and CPB Contractors will conduct several services to begin the assessment stage. This includes scoping, designing, site investigations, pricing and finalising the engineering, procurement and construction contract for substations and high-voltage transmission lines. The deal’s initial phase is estimated to be worth $7 million.

Once the ECI stage is completed along with relevant approvals and financing, the project will move to the delivery phase. Cimic noted that both of its companies are preferred contractors to follow through with works. If selected, UGL and CPB Contractors will start construction services over 3 years. The works are projected to generate $1.7 billion in revenue.

The delivery phase involves the design, construction and commissioning of four new substations, two substation extensions, and the 1,100km high-voltage transmission line.

What did management say?

Cimic group executive chair and CEO Juan Santamaria welcomed the agreement, saying:

UGL and CPB Contractors have proven experience in the delivery of critical infrastructure. We are pleased to support the delivery of this vital transmission line and will look to maximise the economic benefits and employment opportunities that this project can bring to regional communities in North and North West Queensland.

UGL managing director Doug Moss added:

UGL has solid experience delivering high voltage power projects in some of Australia’s remote regions, including the HV connection that feeds Prominent Hill in South Australia.

We are delighted to be working with CuString Pty Ltd, the proponent of the CopperString project, to deliver power infrastructure that will support the growth of this globally significant resources region and export supply chain.

The Cimic share price is down more than 10% from the last 12-month period.

More reading

• Why the Cimic share price (ASX:CIM) is edging higher today
• ASX 200 Weekly Wrap: ASX cools on earnings reality check
• These were the worst performing ASX 200 shares last week
• The Cimic (ASX:CIM) share price is dipping today despite contract win
• Here’s why all eyes will be on the Cimic (ASX:CIM) share price today

Motley Fool contributor Aaron Teboneras 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 Bruce Jackson.

The post Why the Cimic (ASX:CIM) share price is edging higher today appeared first on The Motley Fool Australia.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The United States now has a third coronavirus vaccine authorised for use. Johnson & Johnson (NYSE: JNJ)‘s vaccine, developed by its subsidiary Janssen, received Emergency Use Authorisation (EUA) from the FDA on Saturday. This followed a unanimous vote by the regulator’s vaccines and related biological products advisory committee that it do so.

In contrast to the two shots required for both of the other FDA-authorised coronavirus vaccines — Moderna Inc (NASDAQ: MRNA)‘s mRNA-1273 and Pfizer Inc (NYSE: PFE) and BioNTech (NASDAQ: BNTX)‘s BNT162b2 — Johnson & Johnson’s is a one-shot inoculation. 

It also has relatively less burdensome storage requirements, as it can be kept for as long as three months in standard refrigeration temperatures of 36 to 46 degrees Fahrenheit.

The Johnson & Johnson vaccine demonstrated notably lower efficacy (72%) in late-stage testing compared the 95% or so of its two peers. However, 72% is still considered unusually high by vaccine development standards, plus Johnson & Johnson’s was shown to be 100% efficacious in preventing hospitalisation and death. 

The Moderna and Pfizer/BioNTech shots were authorised in December and so far have been administered to nearly 15% of the US population. So it’s likely that Johnson & Johnson’s jab won’t lap past them, no matter its advantages. It will, however, help push the inoculation rate up quickly.

Investors should be aware that Johnson & Johnson won’t be making money from the vaccine during the pandemic. As it reiterated in the press release trumpeting the EUA, it will provide the jab “on a not-for-profit basis for emergency pandemic use.”

The company added that it has already started to ship the vaccine, with the goal of delivering enough to inoculate over 20 million people in the US by the end of March. 100 million doses should be shipped by the end of June.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• Moderna stock: Buy the dip?

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Johnson & Johnson and Moderna Inc. 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 Bruce Jackson.

The post Johnson & Johnson coronavirus vaccine wins FDA authorisation appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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At the start of each week I like to look at ASIC’s short position report to find out which shares are being targeted by short sellers.

This is because I believe it is well worth keeping a close eye on short interest levels as high levels can sometimes be a sign that something isn’t quite right with a company.

With that in mind, here are the 10 most shorted shares on the ASX this week according to ASIC:

• Tassal Group Limited (ASX: TGR) has seen its short interest rise to 13% to become the most shorted ASX share. Weak prices and concerns that China could slap duties on Australian seafood exports appear to be weighing on investor sentiment.
• Webjet Limited (ASX: WEB) has seen its short interest ease to 12%. With vaccines rolling out across the country, short sellers may believe the worst is now behind this online travel agent.
• Speedcast International Ltd (ASX: SDA) still has short interest of 9.3%. This communications satellite technology provider’s shares have been suspended for over 12 months while it undertakes a recapitalisation after its debts spiralled out of control.
• Mesoblast limited (ASX: MSB) has seen its short interest remain flat at 8.8%. This biotech company’s shares are currently in a trading halt whilst it seeks to raise money to fund its operations.
• Inghams Group Ltd (ASX: ING) has 8.7% of its shares held short, which is up slightly week on week once again. Last month this poultry producer’s shares hit a 52-week high, much to the dismay of short sellers. This followed a solid half year update, which revealed a 28.4% increase in underlying profit.
• AVITA Medical Inc (ASX: AVH) has seen its short interest rise week on week to 8.1%. Last month the medical device company reported a 56% lift in half year revenue to $10.2 million but a loss of $15.8 million. Disappointingly, the latter was 13% larger than the loss it recorded in the prior corresponding period.
• Resolute Mining Limited (ASX: RSG) has seen its short interest rise week on week to 8.3%. Investors have been selling the gold miner’s shares due to industrial disruption at its Syama operation. This has led to management forecasting further production declines and cost increases in FY 2021.
• Service Stream Limited (ASX: SSM) has short interest of 7.4%, which is up slightly since last week. Short sellers will have been celebrating at the weekend after the essential network services company’s shares lost over a third of their value following the release of a disappointing half year result.
• Metcash Limited (ASX: MTS) is back in the top ten with short interest of 7.2%. Short sellers are not giving up on this wholesaler despite its shares trading close to a 52-week high.
• Flight Centre Travel Group Ltd (ASX: FLT) is also back in the top ten with short interest of 7.2%. Last week the travel agent giant posted an underlying loss of $247 million for the first half.

More reading

• Why the Mesoblast (ASX:MSB) share price is on watch this week
• These were the worst performing ASX 200 shares in February
• ASX 200 Weekly Wrap: Friday carnage ruins last week of ASX earnings
• 5 things to watch on the ASX 200 on Monday
• These were the best performing ASX 200 shares last week

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Avita Medical Limited. The Motley Fool Australia owns shares of and has recommended Webjet Ltd. The Motley Fool Australia has recommended Avita Medical Limited, Flight Centre Travel Group Limited, and Service Stream Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Afterpay Ltd (ASX: APT) outlined explosive growth across all key metrics in its highly-anticipated first-half FY21 results announced last Thursday. 

However, the Afterpay share price failed to match its impressive results, diving by more than 20% last week. We can attribute part of this slump to weakness in the broader market, especially the recent tech and growth driven selloff. 

As the Afterpay share price is hovering around a two-month low, here’s what Goldman Sachs thinks it’s going to do next. 

Goldman Sachs neutral on the Afterpay share price 

On 26 February, Goldman described the Afterpay result as ‘solid’ with increasing scale driving unit economics. 

The broker points to an increasing frequency of use as a driver of strong unit economics, which will help the company offset the opex investment required to further scale its United States and European Union businesses. 

Goldman believes that strong customer growth and frequency of use remain two of the most important metrics for Afterpay, given they indicate product/market fit with consumers.

The broker has observed that the frequency of use trends in the US and UK are lagging but impacted by a much more rapid customer growth rate.

Conversely, the Australian and New Zealand markets show that high customer growth can mask the frequency of use trends, which accelerate sharply as customer growth slows. The ANZ region experienced much of its explosive customer growth in FY18, which saw the platform’s frequency of use growth fall as low as 6% in 2H18.

As customer additions slow in FY20/21, frequency of use growth has picked up to 19%, 23% and 30% in 1H20, 2H20 and 1H21, according to Goldman Sachs Global Investment Research. 

Rising costs for Afterpay 

Goldman has also pointed out that Afterpay is spending more to acquire customers, but given a short pay-back period of ~1 year, it is still value-accretive given the long-term frequency of use trends. The broker’s data cited approximately $4.78 in marketing dollars per new customer added in FY18, ramping up to $21.42 in 1H21. 

Looking ahead, Goldman still expects Afterpay to incur substantial cost investment as it scales in North America and the EU. According to Goldman’s estimates, opex is expected to increase to $399.9 million, $530.3 million and $656.7 million in FY21/22/23. This compares to the FY20 opex of just $228.8 million. As a result of rising expenses, the broker slightly downgraded the company’s FY21 and FY22 earnings estimates. 

Overall, Goldman remains neutral on the Afterpay share price, with a 12-month price target of $127.60.

More reading

• ASX 200 Weekly Wrap: Friday carnage ruins last week of ASX earnings
• These were the worst performing ASX 200 shares last week
• ASX 200 sinks 2.4%, Afterpay plunges, AMP jumps
• Brokers name 3 ASX shares to buy right now
• Why Afterpay, Kogan, Orica, & Service Stream shares are crashing lower

Motley Fool contributor Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Kogan.com Ltd (ASX: KGN) share price was out of form in February and sank notably lower.

The ecommerce company’s shares lost a disappointing 22.3% of their value during the month.

Will March be better for the Kogan share price?

The good news is that the Kogan share price has started the month in a much more positive fashion.

In early trade on Monday, the company’s shares were up almost 7% to $14.91.

The Kogan share price has since pulled back a touch but remains 3.5% higher at the time of writing.

Is this a buying opportunity?

One broker that believes the recent weakness in the Kogan share price is a buying opportunity is Credit Suisse.

This morning the broker retained its outperform rating but trimmed the price target on its shares slightly to $20.85.

Based on Friday’s close, this price target implies potential upside of almost 50% over the next 12 months.

Why is Credit Suisse positive on the Kogan share price?

According to the note, the broker was pleased with Kogan’s half year results and believes it remains well-positioned for growth over the medium term.

Especially given recent favourable changes in consumer behaviour, which it suspects will be permanent.

In addition to this, Credit Suisse was particularly pleased with the performance of Kogan’s Private Label (Exclusive Brands) business during the first half.

The Exclusive Brands business reported revenue growth of 115% and gross profit growth of 175% compared to the prior corresponding period. This meant the business contributed 55.9% of the company’s overall gross profit during the half.

Management advised that this was achieved through ongoing investment in Exclusive Brands inventory to broaden its range and meet consumer demand from its growing base of active customers. Given that these products have much stronger margins, Credit Suisse sees this as a huge positive.

Up over 200% but could still go higher

All in all, even though the Kogan share price is up over 200% since this time last year, Credit Suisse believes it can still go even higher from here.

This could make it worth considering after February’s disappointing performance.

More reading

• These were the worst performing ASX 200 shares in February
• 2 ASX tech shares to buy in March 2021
• 2 ASX growth shares to buy in March 2021
• Why Afterpay, Kogan, Orica, & Service Stream shares are crashing lower
• Growth outlook fails to save the Aristocrat share price today

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Kogan.com ltd. The Motley Fool Australia has recommended Kogan.com ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post The Kogan.com (ASX:KGN) share price sank 22% in February: Time to buy? appeared first on The Motley Fool Australia.

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Crown Resorts Ltd (ASX: CWN) shares are on the rise in morning trade after director John Poynton became the latest member of the casino’s board to depart. At the time of writing, the Crown share price has edged 1.01% higher to $10.05.

Mr Poynton, who has been a member of the Crown board since 2018 and Burswood Limited (Crown Perth) since 2004, resigned on Monday morning.

Words from the chair

In a statement to the ASX, Crown Resorts chair and former Senator, Helen Coonan, said:

The [New South Wales] Independent Liquor and Gaming Authority (ILGA) has advised Crown that it considers it appropriate that John step down as a director of all companies within the Crown group, due to a perceived lack of independence arising out of his past relationship with Mr James Packer and CPH [Consolidated Press Holdings], notwithstanding the recent termination of John’s consultancy arrangement with CPH.

She added:

As a result, John has agreed to resign in the best interests of Crown and our shareholders, despite no adverse findings by the Commissioner in the ILGA inquiry to his suitability, integrity or performance.

Background to Crown’s woes

On 9 February, the NSW ILGA found Crown Resorts unsuitable to operate its new casino on the Sydney foreshore. James Packer was heavily implicated in the report.

The findings saw a string of resignations from Crown. According to the Sydney Morning Herald, Mr Poynton was the last of James Packer’s appointees to resign from the board. Mr Poynton had previously resigned from CPH as a last-ditch attempt to remain with Crown.

In addition to James Packer’s appointees, director Andrew Demetriou and CEO Ken Barton also left following recommendations from the ILGA.

After the NSW ILGA’s findings, the West Australian Government announced it too would launch an enquiry into the company’s holding of its gambling licence in the state.

Compounding the casino’s woes, the Victorian Government announced it would establish a royal commission into Crown’s suitability to hold a licence for its Melbourne casino.

Crown share price snapshot

Despite the turmoil facing the company, the Crown share price has held relatively steady in the year to date. In 2021, Crown shares have reached a low of $9.58 and a high of $10.25.

In the initial stages of the COVID-19 pandemic, the Crown share price collapsed to $6.00. Since then, the gaming operator has made a steady recovery.

Based on the current share price, Crown Resorts has market capitalisation of approximately $6.8 billion.

More reading

• Motley Fool CIO Scott Phillips talks to Sky News: Crown’s woes continue, a dividend ‘supercycle’, and falling energy prices
• The Aquis Entertainment (ASX:AQS) share price is now up 1,000% in a week
• 5 things to watch on the ASX 200 on Tuesday
• Crown (ASX:CWN) share price on watch on VIC royal commission
• Crown Resorts (ASX:CWN) share price rises despite earnings hit

Motley Fool contributor Marc Sidarous has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Crown Resorts Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Harvey Norman Holdings Limited (ASX: HVN) share price is pushing higher on Monday morning.

At the time of writing, the retail giant’s shares are up over 1% to $5.31.

This latest gain means the Harvey Norman share price is now up 47% over the last 12 months.

Can the Harvey Norman share price go higher?

According to a note out of Goldman Sachs, its analysts believe the Harvey Norman share price may have peaked now.

This morning the broker downgraded the company’s shares to a neutral rating with an improved price target of $5.10.

This price target is around 4% lower than where the Harvey Norman share price is currently trading.

What did Goldman Sachs say?

Goldman Sachs was pleased with Harvey Norman’s performance during the first half of FY 2021. However, it fears that the peak trading it is experiencing is unlikely to be sustainable.

It commented: “While conditions were still patchy and unpredictable in parts due to the pandemic, HVN benefited substantially from the shift in spending by consumers on products and activities around the home over 1H21 and it managed the business well under volatile, but strong trading conditions. A key highlight was the expansion in its EBITDA margin by 450bps to 10.9% of system sales (on a pre AASB16 equivalent), which compares to previous peaks of ~8% historically.”

“While the housing cycle is likely to provide some buffer to the earnings outlook over FY22 and FY23, the peak trading seen in the June quarter 2020 to March quarter 2021 are unlikely to be sustained, in our view. Despite the upgrade, we forecast FY22 EBIT to decline 30% on FY21.”

Earnings to decline after FY 2021

As a result of the above, the broker is forecasting declines earnings in FY 2022 and FY 2023. Goldman has forecast earnings per share of 57 cents in FY 2021 and then 39 cents and 38 cents, respectively, in the following two years.

In light of this, it doesn’t believe its shares offer enough value for money at this point.

It explained: “Despite HVN’s valuation remaining reasonable versus our price target and historical PE range, after outperforming the market by c. 21% YTD, we are downgrading HVN to Neutral. HVN’s property adjusted FY22E P/E is now at 9.2x, ahead of its longer-term average of 8.7x and well ahead of the 6.1x at the beginning of this FY.”

More reading

• The Harvey Norman (ASX:HVN) share price slips despite soaring profits
• Is the Harvey Norman (ASX:HVN) share price next to do a capital return cashback?
• Why the Harvey Norman (ASX:HVN) share price just hit a decade-high
• ASX stock of the day: Temple & Webster (ASX:TPW) goes from strength to strength

Motley Fool contributor James Mickleboro 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 Bruce Jackson.

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Could the Qantas Airways Limited (ASX: QAN) share price be a buy after the airline released its FY21 half-year result.

What did Qantas announce?

The airline announced that it made an underlying loss before tax of $1.03 billion and a statutory loss before tax of $1.47 billion.

Qantas said that it suffered a $6.9 billion revenue impact from the COVID-19 crisis in the first half of FY21, which amounts to a 75% reduction.

Despite that, underlying operation cashflow was still $1.05 billion. It was the domestic airlines that generated positive underlying cashflow for Qantas. Whilst Qantas International is still suffering because of COVID-19 and closed borders, Qantas Freight is performing very strongly due to the limited number of passenger planes flying (which used to carry freight along with the passenger cargo).

The airline also said that Qantas Loyalty continues to generate good cashflow thanks to credit card spending, health insurance, Qantas Wine and the Qantas rewards store.

Cost cuts

A major feature of the report was cost savings. It’s looking to save a substantial amount of costs over the next three years, the target is at least $1 billion of permanent annual savings from FY23. The short-term target is $600 million of permanent savings for FY21, which Qantas said is on track.

This involves at least 8,500 people leaving the business. More than 5,000 have already left so far, with the remainder expected to have left by the end of FY21.

A total of 14,500 full time equivalent roles are now stood up while around 11,000 full time equivalent roles remain stood down, most of which are associated with international flying.

Qantas also said that significant permanent savings are also being achieved through new deals with major travel agents.

It’s looking at the rationalisation of the group’s property footprint, including the handback or subleasing of surplus office space. It also said that the finalisation of a major review, which includes Qantas and Jetstar head offices, is expected by the end of March.

Finally, Qantas said that it’s renegotiating its supplier deals, including expiring aircraft leases.

In terms of government support, it’s still receiving assistance. Jobkeeper payments are still going to employees who are not working. Support for regional and domestic passenger flights, and for some international freight routes, which would not otherwise have been commercially viable, helped to keep key transport links active.

Outlook

Qantas said that the recent border closures have delayed the group’s recovery by an estimated three months. However, it believes that international travel can restart by the end of October 2021, with the exception of increased travel with New Zealand expected for July 2021.

Domestic capacity is expected to rise to 80% of pre-COVID levels in the fourth quarter of 2021. Qantas is continuing to focus on managing the business to positive net free cash flow.

Broker opinions

UBS has a share price target of $6.20 for Qantas. The result was a little better than what the broker had been expecting. The state borders were temporarily shut off, but the Qantas liquidity didn’t fall. UBs thinks the market isn’t quite pricing in all of the potential cost cuts that the airline can achieve. 

However, Credit Suisse has a Qantas share price target of $3.90. The delay in the domestic recovery is a negative and the balance sheet will come under greater scrutiny. However, a change in the pace of recovery could change its views. 

More reading

• ASX 200 Weekly Wrap: Friday carnage ruins last week of ASX earnings
• Top brokers name 3 ASX shares to buy next week
• Is the Qantas (ASX:QAN) share price great value?
• Air New Zealand (ASX:AIZ) share price flies after earnings devastated
• Qantas (ASX:QAN) share price on watch after $1.1 billion loss

Motley Fool contributor Tristan Harrison 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 Bruce Jackson.

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