Qantas soars on earnings update

Qantas shares rose to their highest level in nine years yesterday following a more-than 18 per cent jump over 10 days.

Qantas Group chief executive Alan Joyce.

Qantas shares rose to their highest level in nine years yesterday following a more-than 18 per cent jump over 10 days as investors continue to applaud the airline’s latest profit update.

Shares in the airline closed 3.1 per cent higher for the session at $4.66, compared with a 0.6 per cent rise from the S&P/ASX 200, after earlier reaching their highest level since February 2008.

Last Thursday’s third-quarter update showed improved domestic trading conditions and, while the group still expects to fall short of last year’s record profit result, investors are clearly comfortable with the airline’s figures and commentary.

“Last year, we posted the highest earnings in Qantas’s history and our guidance today would make this year’s underlying profit the second best in almost 100 years. It shows we’re able to keep performing in a mixed global environment,” chief executive Alan Joyce said.

He added that international competition remained “tough”, with high levels of capacity growth pushing fares down, but said, “we’ve seen those conditions ease slightly”.

The national carrier said domestic revenue had risen 4.6 per cent against last year’s reading, although the international unit remained a drag as its revenue fell 5.6 per cent.

A shift in the market’s mindset towards Qantas appears to be under way thanks to the company’s “superior earnings quality”, according to UBS analysts led by Simon Mitchell.

“Qantas’s 30 per cent share price appreciation this calendar year has closed its price to earnings discount to peers from 40 per cent to 10 per cent, which is now slimmer than its 10-year average,” the analysts said in a note to clients.

“However, we believe investors are reassessing the appropriateness of Qantas trading at a discount to its peers given the company’s superior earnings quality.”