Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search


Air NZ shares fall, analysts query capital return strategy

Air NZ shares fall, analysts query capital return strategy

By Fiona Rotherham

Aug. 28 (BusinessDesk) - Air New Zealand’s share price has dropped 16 percent in the last three months and 5.7 percent since announcing a record $327 million net profit this week and indicating a significant earnings uplift for the 2016 financial year.

Deutsche Bank analyst Chris Byrne said in a research note that the negative reaction to the 2015 full-year result suggested the market was disappointed no special dividend was announced and remains concerned about the airline’s ability to profitably fill capacity increases over the next year as economic activity weakens and competition increases.

Following this year’s result, analysts covering the stock have bumped up their expected 2016 earnings based on jet fuel savings, 11 percent capacity growth, and a stronger contribution from its 26 percent stake in Virgin Australia. That’s partly offset by concern about new competition including Jetstar on regional routes, Chinese airlines, and from Qantas alliance partner American Airlines on trans-Pacific flights.

The analysts have a dimmer profit outlook for the airline in the following two years when oil prices are expected to rise, the NZ dollar weaken, and increased competition hurt earnings.

Deutsche Bank is forecasting net profit of $531 million for 2016, $409 million for 2017, and $347 million for 2018. UBS’s forecast for 2016 is slightly lower at $527.7 million but higher for 2017 and 2018 at $468.9 million and $434.4 million respectively. First NZ Capital is the most pessimistic of the three forecasting net profit of $519 million in 2016, dropping to $338 million in 2018 and $335 million in 2018.

First NZ Capital analyst Paul Turnbull said in a research note that the direction of jet fuel prices and currency will see significant excess returns in 2016, with the fuel price having most influence on the end result. “However, we also believe that the competitive dynamics of the airline industry will apply downward pressure to Air New Zealand’s returns in the medium-term."

Target prices for the stock from the three firms range from $2.40 to $3.15 compared to the current $2.50 share price.

Opening two new routes in December to Buenos Aires and Houston could also have an impact on 2016 earnings. UBS analyst Marcus Curley said in a research note that while Air New Zealand said advance sales on both routes had been “going well”, it was only appropriate to incorporate some initial long-haul pressure as the airline builds demand in the first six months.

He’s putting less weight on additional Chinese competition with new year-round services from China Eastern from Auckland to Shanghai because of a survey showing a substantial increase in New Zealand’s popularity as a tourism destination for mid-to-high income Chinese. Air New Zealand and Air China are still waiting on regulatory approval for their proposed alliance to coordinate operations in the New Zealand to China market.

Christchurch International Airport today announced the commencement of year-round direct services to be provided by Chinese government-owned China Southern Airlines, between Guangzhou and the South Island gateway, with New Zealand's increasingly popularity as a Chinese tourism destination cited for the development.

Turnbull said Jetstar’s decision to enter regional routes in New Zealand likely represents the first step in the Qantas budget offshoot’s return to capacity growth in the domestic market. Its entry will lift regional capacity by around 12 percent while Air New Zealand intends lifting domestic capacity by 8 percent in 2016.

Byrne has lifted his estimated dividend for the 2016 financial year by 25 percent to 20 cents per share which reflects an expected revenue decline in 2017.

“The dividend profile will depend on what happens to demand, fuel price and the New Zealand dollar over FY 2016. Air New Zealand may choose to pay a special dividend to recognise the confluence of factors contributing to 2016’s result,” he said.


© Scoop Media

Business Headlines | Sci-Tech Headlines


Westpac: Sets Out Plan To Go Cheque-Free

Westpac NZ has announced details of its plan to phase out cheques, after signalling in May that it would be supporting a move to other forms of payment. Cheques will cease to be available as a means of payment after 25 June 2021. Westpac NZ General ... More>>


NZTA: Major New Zealand Upgrade Programme Projects Go To Tender

Two major New Zealand Upgrade Programme projects are beginning tenders for construction. The New Zealand Upgrade Programme is a $6.8 billion investment to get our cities moving, to save lives and boost productivity in growth areas. The first Auckland ... More>>

Reserve Bank: RBNZ Seeks To Preserve Benefits Of Cash

The Reserve Bank – Te Pūtea Matua is taking on a new role of steward of the cash system “to preserve the benefits of cash for all who need them”, Assistant Governor Christian Hawkesby told the Royal Numismatics Society of New Zealand annual conference ... More>>


Economy: Double-Dip Recession Next Year, But Housing Rolls On

New Zealand's economy is expected to slip back into recession early next year as delayed job losses, falling consumer spending, and the absence of international tourists bites into growth. More>>


Microsoft New Zealand: Microsoft Expands “Highway To A Hundred Unicorns” Initiative To Support Startups In Asia Pacific

New Zealand, 14 October 2020 – Today Microsoft for Startups launches the Highway to a Hundred Unicorns initiative in Asia Pacific to strengthen the region’s startup ecosystem. This follows the initiative’s success in India, where 56 startups were ... More>>

Fonterra: Farmers Taking Another Step Towards New Zealand’s Low Emissions Food Production

They’re hot off the press and intended to help take the heat out of climate change. Fonterra farmers are already among the world’s most sustainable producers of milk and now have an additional tool in their sustainability toolbox. Over the last few ... More>>


Courts: Businessman Eric Watson Sentenced To A Four-Month Jail Term

New Zealand businessman Eric Watson has been sentenced to a four-month jail term in the UK for contempt of court, TVNZ reports. More>>

OECD: Area Employment Rate Falls By 4.0 Percentage Points, To 64.6% In Second Quarter Of 2020

The OECD area employment rate – the share of the working-age population with jobs – fell by 4.0 percentage points, to 64.6%, in the second quarter of 2020, its lowest level since the fourth quarter of 2010. Across the OECD area, 560 million persons ... More>>

Spark: Turns On 5G In Auckland And Offers A Glimpse Into The Future Of Smart Cities

Spark turned on 5G in downtown Auckland today and has partnered with Auckland Transport (AT) to showcase some of the latest in IoT (Internet of Things) technology and demonstrate what the future could look like for Auckland’s CBD with the power of 5G. 5G is ... More>>

Stats NZ: Monthly Migration Remains Low

Since the border closed in late-March 2020, net migration has averaged about 300 a month, Stats NZ said today. In the five months from April to August 2020, overall net migration was provisionally estimated at 1,700. This was made up of a net gain ... More>>

University of Canterbury: Proglacial Lakes Are Accelerating Glacier Ice Loss

Lake Tasman, New Zealand | 2016 | Photo: Dr Jenna Sutherland Meltwater lakes that form at glacier margins cause ice to recede much further and faster compared to glaciers that terminate on land, according to a new study. But the effects of these glacial ... More>>


Dairy: Fonterra Sells China Farms

Fonterra has agreed to sell its China farms for a total of $555 million (RMB 2.5 billion*1), after successfully developing the farms alongside local partners. Inner Mongolia Natural Dairy Co., Ltd, a subsidiary of China Youran Dairy Group Limited ... More>>