The cheapest stock in the ASX100

Last week, I presented a stock idea at the Future Generation Investment Forum. Despite owning one of Australia’s most recognisable brands, this company trades on a PE ratio of around nine. Here, I outline why Qantas could be a high-flyer in the coming years.

Qantas has three ‘crown jewels’, that separate it from other airlines, and should demand a valuation premium to other airlines:

• Qantas domestic. Unlike the International division, domestic is highly profitable and accounts for over half of earnings.
• Jetstar. Leading low-cost airlines, such as RyanAir in Ireland and Southwest Airlines in America trade at a significant premium to Qantas.
• Qantas Frequent Flyer. This is the largest, most successful loyalty program in Australia with almost 12,000,000 members.

But on its own, undervaluation isn’t enough. Here are three upcoming catalysts that could see the stock re-rate over the next six months:

• We expect analyst earnings upgrades in August
• Qantas should restore its fully franked dividend this year, for the first time in 10 years
• Re-admittance to the MSCI Index. Last year, Qantas was deleted from this index due to hitting its 50% foreign ownership cap.

Regal has, or is likely to have in the future, a position in the securities which are mentioned in this article.