Qantas Airways (QAN) Stock Recommendation

Qantas Airways (QAN) has a reported rumour published in the Australian Financial Review (AFR) that it is a potential take-over target and that QAn has granted a private equity firm one month's exclusive due diligence. Qantas describes the article as pure speculation. MRE have noted that if there will be a buyer, they will need to be domestic: " QAN has foreign ownership restrictions, namely: i) max 49% aggregate foreign ownership (currently 44%), ii) max 35% foreign airline ownership (MRE understand Nil currently) and iii) max 25% ownership by one foreign person. Thus any bid for control would need to be from a domestic party. The size of QAN certainly does not rule this out at A$8bn. Other restrictions include: head office in Australia and two thirds of directors must be Australian citizens. The requirement reflects the fundamental structuring of the global aviation industry around bi-lateral access arrangements between countries." The stock analsy notes that Near tern earnings is rising quickly as fuel costs are largely locked in for FY07 with options. MRE notes that, "Airlines aren't the first asset class to spring to mind when thinking about leveraged buy-outs (LBOs). However, MRE note that QAN has a good degree of balance sheet capacity. It is currently rated BBB+ by S&P (which is strong for an airline). Gearing is at a low point not seen for +5years with D:D+E (inc. off balance sheet) forecast to fall to 39% in FY07 with D:EBITDAR of 3.2x (inc off-balance sheet) - this has been 1x higher."

The stock analyst, MRE also note the potential for asset sales from buying out Qantas (QAN), which might include: "i) terminals at the major airports; ii) Star-Track Express; iii) listing the Frequent Flyer programme; iv) sale of catering etc. However, there is also the issue of QAN's significant aircraft order book. One solution might be to slow the growth and age out the fleet (although QAN is already arguably at a disadvantage to its key competitors Singapore Airlines and Emirates in terms of fleet age)."

Qantas Airways Limited is listed on the Australian Stock Exchange (ASX) under stock code QAN. You can view their investor website here. QAN was listed on the ASX on 31 July, 1995. Qantas is involved in the operation of international and domestic air transportation services, the sale of worldwide and domestic holiday tours and associated support activities including catering, information technology, ground handling and engineering and maintenance. Geoff Dixon is the current CEO for Qantas. It is interesting to note that Retired General Peter Cosgrove and James Packer sit on the Board as Non Executive Directors for Qantas, the Australian airline. Previous news and stock recommendations for Qantas (QAN). Find out the meaning of the recommendations in this primer. Browse for other stockbroker recommendations. Check your charts and good luck with your share trading!