Originally Posted by
modandm
Just been playing with my model so a quick update.
The NZD has run up to above 84c vs the USD - what does this mean for AIR going forward?
Well assuming Jet fuel stays flat at 130USD/barrel the change in fuel cost in NZD will be $1206m in FY13 to $1116m in FY14. This adds about 6cps to earnings taking my FY14 estimate from 20c to 26c. FY13 the airline is hedged 79% at 80c but I expect they will get a good benefit in FY14 should the USD continue to remain weak or weaken further.
Note that I haven't taken into account savings on a/c acquisition or lease costs or any other USD costs (because these aren't broken out) and because some revenue is in USD too so it doesn't make sense to.
For reference key assumptions in my model are 3% pax revenue growth p.a, 15% ancillary revenue growthp.a, labour costs rise at 3% p.a, fuel remains $130usd barrel and FX as mentioned at NZD=US 0.84c.
My numbers now run ahead to FY15 (extrapolating current trends) and keeping the same growth rates and Fuel FX assumptions I reach an EPS of 32cps. Obviously this should be taken with a pinch of salt. Alot can happen in 2 years in the airline business. Note that I don't assume any dividend from VAH either which would increase earnings.
As far as a valuation I consider a 10x PE on FY14 earnings of 26c (at current fuel/FX) = $2.60 per share - still attributing no value to the VAH stake which is worth about 24cps. Also not giving credit for the $1bn NZD of cash on the B/S because this is an ongoing liquidity requirement in my view.
With at least 10c in dividends on top of the capital appreciation you are looking at over 100% return over a 12-18month time frame.
Sure there are risks as Jaa mentions - but there are also risks to the upside:
1. NZD strengthens futher vs USD
2. Fuel falls as shale oil depresses energy costs
3. Management deliver cost savings (not all factored in)
4. Stronger than 3%pa pax revenue growth
Overall I maintain my conviction and as said before I am heavily invested.
Cheers
For posterity - AIR currently trades at $1.33 - with concensus at about $1.55 following recent u/gs. FY13 concensus EPS is 14c vs 15.7c my estimate.