QAN - never look a gift horse in the mouth

It seems some don't know a good thing when they get offered it. This article suggests some vested interests think the Qantas bid of $5.60 ($5.45 in cash plus the fully franked $0.15 dividend) is too low and undervalues the business. In a note last week JP Morgan now values QAN at $5.68 and adds that there is 'enormous upside risk' to earnings because of current trading conditions. Interesting.

Let's have a look at QAN's fundamentals. Average ROE of 13.1% over the past 5 years. The business is highly leveraged with $6.5bn in Equity and $5.5bn in Debt. Even with a forecast 35% increase in NPAT for FY07 ROFE is an uninspiring 10.9%. A higly capital intensive business with the inherent business risks of running an airline fair value lies around $2.60. Management has confirmed analyst estimates of a record profit for FY08 of around $860m. Even assuming this I can get no more than $3.77 per share.

If anyone knows where I can get a copy of JP Morgan's valuation for QAN please let me know, I could do with a good laugh.