UBS considers the most material disclosure at the company’s investor briefing was a five-year target for Qantas domestic earnings (EBIT) growth of 18% and 22% for Jetstar domestic.
While the targets appear optimistic at first glance, UBS believes they are based on realistic assumptions for 2.5% unit revenue growth per annum and unit costs growth of 1% per annum.
However, disciplined capacity growth from all domestic competitors is critical. Buy rating and $7.50 target maintained.
Target price is $7.50.Current Price is $7.13. Difference: $0.37 – (brackets indicate current price is over target). If QAN meets the UBS target it will return approximately 5% (excluding dividends, fees and charges – negative figures indicate an expected loss).