The Equity Radar is designed to pick out equities which perform well relative to other equities in the same industry.
The equity universe is the S&P Global 1200 Index, comprised of S&P 500, S&P Europe 350, S&P/TOPIX 150 (Japan), S&P TSX 60 (Canada), S&P/ASX 50 (Australia), S&P Asia 50 and S&P Latin America 40. Equity Radar scores equities based on six different factors: Value, Yield, Quality, Momentum, Reversal, and Volatility. All factors are industry normalised so all factor scores are relative to their respective industries. Furthermore, all factor scores are designed so that higher is better.
Value: Based on the ratios: EBITDA-to-EV, book-to-price, earnings-to-price, cashflow-to-price, and sales-to-price. For financials, the factor is only based on book-to-price and earnings-to-price. For real estate, ‘funds from operations’-price is used instead.
Yield: Based on dividend yield for financials and real estate and on shareholder yield for other equities. Shareholder yield is a measure of total returned capital to shareholders which is the sum of dividends paid, net capital stock and net change in long-term debt.
Quality: Return on equity (ROE), return on assets (ROA) and return on invested capital (ROIC). ROIC is not used for financials.
Momentum: Based on the 252-day minus 21-day price change. A high score indicates a large price increase, and a low score indicates a large price decrease. Reversal Inverse of 21-day price change. So stocks that have fallen a lot get a high score.
Volatility: 360-day volatility using the Rogers and Satchell Model. A low volatility is indicated by a high score.
Total: A score for comparing equities across all the factors above. It is calculated as the average of the six factor scores above.
Note: The Equity Radar should not be interpreted as trade recommendations but merely as inspirational lists.
The Saxo quant model scores Qantas highly on the momentum factor and concurrently indicates positive value and yield. The Equity Radar model uses shareholder yield to evaluate the yield factor, this measures the cash flow returned to shareholders through dividends, buybacks, or debt reduction.
On May 2, 2018 Qantas announced its 3QFY18 results highlights were:
• Revenue up $4.5bn up 7.5% pcp
• 6 additional dream liners ordered
• New 787-9’s are 20% more fuel efficient
• Domestic revenue increased 8%, International 5.2%
• End of April 2018 Qantas has hedged 70% of FY19 fuel costs
• At 30 April the $378m buyback was 51% complete, once finished
Qantas will have bought back estimated 24% of its stock since Oct 2015. Increasing cash flow will increase possibility of higher dividends and further buybacks.
Qantas should continue to report robust profits as it maintains its dominance in Australia and expands international operations. The expansion of Jetstar operations should bolster earnings further as leisure travel yields increase, any budget tax cuts may also have a positive effect on this. Increasing air travel demand in Asia could also be a key driver of growth opportunities within Jetstar Asia. Jetstar has also emerged as a shielded revenue stream as they operate in an effective duopoly in the low-cost carrier space.
The resource sector recovery continues in Australia boosting corporate travel expenditure, which Qantas is poised to benefit from.
The Qantas loyalty unit has a dominant market position within Australia and provides strong earning with capacity for monetisation to provide shareholder value. As a stand-alone entity this loyalty business could be valued upwards of $2 billion.
A key risk is the rising costs of fuel which will seriously undermine profit despite fuel hedging strategies as operating costs could be pushed significantly higher … watch this space WTI Crude Future $71.61 USD at time of writing (18/05/2018).