Qantas Valuation

In: Business and Management

Submitted By superhbj
Words 3596
Pages 15
This report aims to determine whether Qantas is suitable to be included in a diversified share portfolio aiming to maximise investor returns over the long term.
Analysis began with a broad view of the airline industry, both international and domestic. Porter’s Five Forces framework is utilised to determine the strengths of buyers, sellers, potential entrants, competitors and substitutes. Overall the airline industry is characterised by high barriers to entry however these barriers are reducing and competition is increasing, particularly in the low-cost segment.
Qantas was then examined utilising SWOT analysis to highlight the strengths, weaknesses, opportunities and threats particular to the airline. Qantas has a strong competitive position with a recognisable brand and loyal customer base through the use of the Frequent Flyer program. However, expansion into the Japanese domestic market could jeopardise future profitability. Other threats could arise from further technology failures, natural disasters and labour disputes.
Accounting analysis of Qantas focused on the treatment of the Frequent Flyer program, hedging accounting and the adjustment of estimates relating to aircraft. It appears that management has applied prudent estimates which accurately reflect the financial position whilst allowing some flexibility.
Discounted cash flow analysis was utilised to determine intrinsic equity and firm value. Key assumptions included the cost of equity, market risk premium and company beta, which were determined from economic forecasts and market observation. The intrinsic value of Qantas is valued at $1.79 per share.
Following an analysis of the airline industry and detailed DCF and comparables valuations, this report does not recommend the inclusion of Qantas in a diversified portfolio. Considering the uncertainty surrounding the strategic…...

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