## ASX Blue-Chip Comparisons: Qantas vs. ANZ## ASX Blue-Chip Comparisons: Qantas vs. ANZ When considering ASX investments, blue-chip shares like Qantas Airways Limited (QAN) and ANZ Group Holdings Ltd (ANZ) offer potential advantages. However, it’s important to compare key factors before making a decision. ### Competition Qantas: Enjoys a relatively low level of competition in the Australian airline industry, with only Virgin and Regional Express serving as major domestic rivals. This allows Qantas to maintain higher airfares and margins. ANZ: Operates in a more competitive banking environment, facing competition from both established players and digital challengers. Smaller banks have gained market share, putting pressure on revenue and margins. ### Earnings Direction Recent earnings results show mixed signals for both companies: Qantas: Recovering from COVID-19 impact and reporting strong profits, but earnings forecasts indicate a slight decline in FY24 and FY25. ANZ: Earnings are expected to fall in FY24 due to economic challenges, but a recovery is anticipated in FY25. The acquisition of Suncorp’s banking operations may enhance scale and margins. ### Valuation Qantas: Trading at a lower earnings multiple (6x FY24 estimates) compared to ANZ. This suggests that Qantas may be undervalued relative to its earnings potential. ANZ: Valued at 12x FY24 estimated earnings, with estimates below 12x for FY25. The dividend yield could provide additional return for investors. ### Conclusion Based on these factors, Qantas appears to offer more attractive growth prospects in the near term due to its lower competition and improving earnings. However, ANZ’s higher dividend yield and long-term banking strength should also be considered. Ultimately, the best investment decision depends on individual circumstances and risk appetite.
ASX blue-chip shares can be very attractive investments when bought at a good price. Both Qantas Airways Limited (ASX: QAN) and ANZ Group Holdings Ltd (ASX:ANZ) offer interesting potential.
There is an advantage in owning some of the largest S&P/ASX 200 Index (ASX: XJO) shares if they outperform. If a blue chip can’t beat the broader ASX share market, an investor might as well opt for an index fund like the Vanguard Australian Stock Index ETF (ASX: VAS).
Many investors are attracted to ASX bank shares because of their high dividend yields. But I think there is more to an investment than just passive income, although that can certainly contribute to total shareholder returns.
We can compare Qantas and ANZ shares in a few areas. Let’s see.
How much competition?
The amount of competition in an industry can affect the profits a company can make.
If it is easy for a newcomer to compete on price, margins can regularly come under pressure.
Over the past five years, banks have operated in a more competitive environment. Digital banking has enabled the smaller players to capture the major ASX banking shares such as ANZ and Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), and National Australia Bank Ltd (ASX:NAB). Today, you don’t need a national branch network to serve borrowers.
To demonstrate how much competition there is, here are some of the listed lenders outside the big four: Macquarie Group Ltd (ASX: MQG), Bank of Queensland Ltd (ASX: BOQ), Bendigo and Adelaide Bank Ltd (ASX:BEN), AMP Ltd (ASX:AMP), Pepper Money Ltd (ASX: PPM), MyState Ltd (ASX: MYS) and currently Suncorp Group Ltd (ASX: ZON).
In ANZ’s FY24 half-year results, the bank’s CEO Shayne Elliott said retail banking was “more competitive than ever”. Elliott added that the domestic environment “is expected to remain challenging for the remainder of the year”.
Qantas is known as the national airline of Australia. It doesn’t have much competition, with Virgin and Regional Express Holdings Ltd (ASX: REX) are the only domestic competitors it has to worry about. There are also not that many competitors for international flights to and from Australia, which I think is helpful for Qantas shares.
Less competition for Qantas means the airline can offer satisfactory airfares.
Earnings direction
If a company makes a profit, the stock price is more likely to rise, in my opinion. I think it is one of the most important factors for successful investing.
ANZ’s chief executive said the Australian and New Zealand economies were “likely to remain subdued”, although the bank was well positioned given its diversity of operations, prudent management and strong customer base.
Broker UBS thinks ANZ profits will fall from $7.4 billion in FY23 to $7 billion in FY24. However, FY25 earnings are expected to recover to $7.3 billion, although that would still represent a reduction from FY23 earnings figures. Time will tell whether the takeover of Suncorp Group Ltd‘s (ASX: SUN) banking operations could help improve its scale and margins.
The banking sector is seeing increasing delinquencies, so that will be something to watch for ANZ shares in the coming year.
Qantas is recovering from the impact of COVID-19 and is now making big profits again, although airfares are not as high as they were recently. Brokerage UBS suggests that Qantas’ net profit could fall from $1.7 billion in FY23 to $1.49 billion in FY24, before falling to $1.44 billion in FY25.
However, Qantas recently reaffirmed how it aims to grow underlying earnings before interest and tax (EBIT) from its loyalty division from a range of $500 million to $525 million in FY24 to between $800 million and $1 billion by 2030.
So it looks like neither company will generate profits in FY 2025.
What about the rating?
Based on UBS estimates, the Qantas share price is valued at 6x estimated FY24 earnings and 6x estimated FY25 earnings.
Looking at UBS’s forecasts for ANZ shares, the bank is valued at 12x estimated FY24 earnings and below 12x estimated FY25 earnings. The ANZ dividend could certainly help with shareholder returns, although Qantas is also expected to start paying dividends.
Qantas clearly has a lower earnings multiple. If no major negatives emerge for the airline, I think it could deliver stronger returns over the next two or three years.
I would also choose this airline in the long term due to lower competition, improved aircraft fuel economy and growing Qantas Loyalty business.
