1. Alexander Daniel Gonzalez s5002687
Investment Analysis and Management 2206 AFE

2. ● Biggest Airline in Australia
●Background and main business
●SWOT and five force analysis
●Financial Ratios and Valuations
INTRODUCTION

3. HISTORY, BUSINESS
 Queensland in 1920
● Qantas Domestic, Qantas
International, Jetstar Group,
Qantas Loyalty, and Qantas
Freight.
● Transportation of passangers
● 49 m passangers - 38 countries
– up 800 flights/ week
● More 30000 employees. 93 %
AU
● Profit 2016 1.53 billion.

4. Qantas financial ratios in the last 5 years.
•Profitability: Smaller than average, although it can be seen in operating and net profit
margin that the trend in the last two years is positive.
•Liquidity: Below the average (current ratio & receivables turnover). The trend is negative,
however it can be due the decreasing of debt .
•ROE: It is above the average and it is clearly due to the acquisition of additional assets
(financial leverage), because total asset turnover (efficiency of assets) and profit margin are
below the average, which can be sign of future growth of the company, although a few
more risky.

5. Qantas SWOT analysis
STRENGTHS WEAKNESSES
OPPORTUNITIES
•Fuel prices
• Rise labour cost
• Increase competition in
Australia from new start ups
and SE airlines.
•Too much concentration
around Australasia
•Main ratios loose against
industry average
THREATS
• More international
destinations
•Liasion with international
airlines for a combined service
• Strong backing of Australian
Goverment
• One of the largest airlines in
Australia and worldwide
• Good brand reputation.

6. Five forces model

7. Valuation and Recommendation
(Relative):
Global Average:
Competitors P/E
Ratio
Company PE ratio
Emirates 6.54
United Airlines 4.89
Air New Zealand Ltd 4.81
Air China Ltd 9.28
Cathay Pacific Airways 9.98
1. Global Average: None of the factors is determinant to decide if Qantas is a good investment, as some ratios are
above and others below the average. The most important P/E ratio is slightly below, but insignificantly.
2. Competitors comparison: Price to earning ratio can be considered on average as some competitors have better
and other worse this ratio.
3. ROIC higher than cost of capital is a good sign in the last financial statement approved by Qantas.
(WACC 7.73% - appendix)
Return on
Invested Capital
Qantas Industry Average
Price/ Earnings 6.5 6.6
Price/ Book 2.0 2.6
Price/ Sales 0.4 0.8
Price / Cash Flows 2.4 2.0
Dividend Yield % 3.1 0.9

8. Valuation and Recommendation
(Dividend Discount Model- DDM):
Year Formula Dividend Discount
Factor
[1-(1+R)^-n]/r
PV
1 0.07 * 1.15 0.0805 0.9090 0.0732
2 0.07 * 1.15^2 0.0926 0.8260 0.0765
3 0.07 * 1.15^2*1.12 0.1037 0.7510 0.0779
4 0.07 * 1.15^2*1.12^2 0.1162 0.6830 0.0794
5 0.07 * 1.15^2*1.12^3 0.1301 0.6210 0.0808
Total PV of Dividends 0.3878
•Year: 6
•Growth Rate : 10%
•D = PV *(1 + i)^n = 0.07 * (1.15)^2*(1.12)^3*(1.1) = 0.1431
•V = D / (K – G) = 0.1431 / (0.1169 – 0.1) = 8.48
•PV = V * Discount Factor= 8.48 * 0.6210 = 5.27
•Total Value= PV + Total PV of Dividends = 5.27 + 0.3878 = 5.66
(5.66 > 3.24)
•Actual Growth 30.69%
(appendix).
•However, this high growth
cannot be maintained (as
stated in DDM).
•Therefore, I took a
conservative approach until
the growth is below
“k”(Expected Return-
appendix).
•Qantas stock is undervalued,
as its actual price is 3.24
(appendix).

9. Conclusion
•Qantas is a mature, reliable and experimented airline company.
• SWOT analysis: the strenghts and opportunities are more tangibles than weaknesses
and threats, specially because these last can be a circumstance in every companies.
•Five force model:
a) negative impacts in the company can be specially in areas that would affect
the whole airline market.
b) Qantas is solid company comparing with competitors.
•Qantas financial ratios is a point to be improved, however the trend seems to be
changing.
•Valuation . a) Relative : No determinant. b) DDM: Qantas is undervalued.
•Recommendation: BUY QANTAS STOCK.

10. REFERENCES
●Lange, H. P., Saunders, A., 1949, & Cornett, M. M. (2015). Financial institutions
management: A risk management approach (4th ed.). North Ryde, NSW: McGraw-
Hill Education.
●Retrieved September 26, 2016, from http://csimarket.com
●Retrieved September 26, 2016, from http://financials.morningstar.com
●Retrieved September 26, 2016, from http://www.asx.com.au/
●Retrieved September 26, 2016, from http://www.bloomberg.com
●Retrieved September 26, 2016, from
http://www.qantas.com.au/infodetail/about/corporateGovernance/2016AnnualRepo
rt.pdf
●Retrieved September 26, 2016, from
https://www.qantas.com/travel/airlines/home/au/
●ValueWalk: Market risk premium used in 71 countries in 2016: A survey with
6,932 answers (2016). Chatham: Newstex.

11. Appendix
•CAMP (Capital Assets Pricing
Model)
E(Ri) = RFR + bi(RM - RFR)
= 0.0425 + 1.24 ( 0.06)
= 0.1169
• Growth of the Company
G = RR * ROE
= 0.9990 * 0.3073
= 0.3069
•Retained Earnings Ratio
RR = (1 - D) / Net Income
= (1 - 0.07) / 1029
=0.9990
•Qantas Value (Bloomberg)
Value of the stock= 3.24
• Risk Free Rate (ASX average 2 &
5 years treasury bonds)
RFR = 4.25%
•Market Risk Premium R (m) =
6% (http://www.valuewalk.com)
WACC= E/(E + D)*Cost of
Equity+D/(E + D)*Cost of Debt*(1 -
Tax Rate)
= (3260/ 8122)*0.1169 +
(4862/8122)*0.0725*(1-0.3)
= 0.0773
(http://quicktake.morningstar.com/stocknet/bonds.aspx?symb
ol=qubsf)