MARKETS SPECTATOR: Qantas preps for take-off

Will Qantas' sale of Startrack be rocket fuel for the share price?

UBS thinks that the stock remains undervalued relative to global peers.

Bullish on Qantas for a while now, UBS says that despite the ongoing challenges at the international business, recent events look promising.

With a better balance sheet and the Emirates alliance UBS reckons the stock is worth $1.60, 30 per cent higher than where it sits today.

Yesterday's much-speculated move to divest its 50 per cent stake in domestic express freight, Startrack, to Australia Post for net cash of $413 million unravels a troubled foray into the domestic road express market in 2003. UBS believes this transaction, combined with the Boeing Dreamliner aircraft changes, sees a total of $800 million in capital liberated from the group – which will help reduce group debt of $8.9 billion.

On a price to book value basis, Qantas is clearly lagging behind similar players, like Cathay and Singapore, when it comes to delivering on return on equity.



Qantas recently had its credit rating reduced to BBB- by Standard & Poor's, despite having improved its debt position by delaying take-up of the Boeing Dreamliner. Yesterday's sale will help pay down more debt.

Now the balance sheet is getting to a better position, UBS thinks Qantas may be contemplating distributing money back to shareholders, either via a buyback or dividends.

A buyback would certainly put some air under Qantas' wings.