AIR - Air NZ.

[mikeybycrikey]

Airpoints is undoubtedly a huge money spinner for AirNZ and although not necessarily advocating a sale, any private divestment of the loyalty programme could land the company with a huge windfall of cash.

I did wonder with the recent Airpoints changes to now make it a competitor with FlyBuys, whether they might be aiming for a partial sale in the next few years.

[Raz]

I did wonder with the recent Airpoints changes to now make it a competitor with FlyBuys, whether they might be aiming for a partial sale in the next few years.

That share price just keep going up..much surprised...still holding a bundle so no regrets...still sold 200,000 share too early....usually my most common error!

[couta1]

That share price just keep going up..much surprised...still holding a bundle so no regrets...still sold 200,000 share too early....usually my most common error!

Divvy hunters driving it up like over at Spark, they should be buying IFT though, long time for the next drink from Air or Spark. PS-Yes I know that common error all too well.

[Beagle]

That share price just keep going up..much surprised...still holding a bundle so no regrets...still sold 200,000 share too early....usually my most common error!

Have a skim read of the full content of the RBNZ announcement this week, I posted a link in the GNE thread. They see as far out at late 2019 the OCR still being only 1.75% and not moving up to 2% till mid 2020. Very supportive environment for high dividend yield stocks. I see ~ $1.50 in fully imputed dividends over the next 5 years including two specials of ~ 25 cps in the FY20-FY22 years after their capex program is finished. $2.08 inclusive of imputation credits to be paid to shareholders over the next 5 years. (I acknowledge forecasting dividends that far out in the aviation industry is subject to significant potential variation).
Any wonder dividend hounds are chasing it ? Disc: I added even more yesterday at $2.76 as I believe on a dividend yield basis the investment case is very sound indeed.

[couta1]

Whilst Air has a great divvy yield, excluding specials it's on a par with a few others at current prices. I focus on the immediate upcoming divvy which just happens to be IFT right now ,which should announce a 10c divvy the same as the upcoming Air one. Of course I plan on coming back for the Air divvy but will choose another option if the SP is at or higher than currently, when it is buy time.

[Beagle]

Whilst Air has a great divvy yield, excluding specials it's on a par with a few others at current prices. I focus on the immediate upcoming divvy which just happens to be IFT right now ,which should announce a 10c divvy the same as the upcoming Air one. Of course I plan on coming back for the Air divvy but will choose another option if the SP is at or higher than currently, when it is buy time.

Been a tough year obviously. I think most of us underestimated the impact to yields that the lower oil price/competition would bring. It's a global phenomenon. Certainly my FY17 earnings estimates have fallen from 40-45c down to 30-35c. That said the share price move down has been dramatic, leaving the company (imho) significantly undervalued, as has been the case for about the last 5 years (has it been that long...).

I certainly knew that FY16 was peak, and perhaps naively thought the dividend / cash-flow story would support the stock. Clearly the negative momentum and uncertainty on yields has mean't a tough devaluation, and risk being priced into the stock.

Where to from here then?

For the ST investor: Yield comparisons get easier in January, so should the operating stats firm up I would expect a re-rating towards 2.50, which values the stock on a reasonable 8x PE.

For the LT investor: Personally i'm not too concerned whether AIR make 28 or 32c in FY17 EPS. The question is sustainability and ideally growth in profit from there. If sustained (along with cash flow) there is a bonanza in FY19-20. I did a few figures and have spoken to the CFO, basically over the next 4 years (if things stay stable), AIR could pay $1.80 in dividends. That's based on a 50c special in FY19, and a 60c special in 2020 plus recurring twenty something ordinary. Over 5 years, you basically get your entire capital back, so if the stock is still at $2, you double your money (15% p.a). Any growth is cream on top.
Pleased with the recent result and expecting the yield improvement to roll in from here. What is clear is that sentiment has switched from cautious to neutral and happily seen the stock advance. The cost performance and fleet simplification benefits are starting to show up, and I expect analysts to continue to be surprised positively by these over the coming 18m.

Still see the capital return bonanza in a few years time, this is now being recognised in analyst models, though most see this as outside the 'investment horizon', and therefore it gets little credit in the valuations (which cluster at 2.30 - funny that..).

The short term question for us now is what would you pay for 20c p.a dividend, I think it could settle at 2.60 pre div, 2.50 after - providing 8% forward yield.

For the longer term investor a return to yield growth in FY18 will bring EPS upgrades, which should support the stock towards $3.00. In FY19 we will need to watch out for announcements about capex, but as management have explained pre-payments for deliveries 2023-on (777-200 replacement) are likely to begin in 2021.

I maintain that the improvements this company has made through the last few years (fleet, IT, lounges, processes, new routes, network alliances) set it up for a sustainably higher level of returns than in the past, and that short term earnings focused analysts don't properly account for this in either their estimates or the multiples they use to value AIR. With the NZX50 trading at a high multiple, and the outlook for NZ better than ever, AIR should gradually re-rate upwards from here.

Best, Mod

Fair enough Couta1 but from a long term perspective here's mod's most recent thoughts of special dividends over the next five years and as I am not a trader as I mentioned to you when I was down in Wellington I am increasingly taking at least a five year view of stocks. I'm forecasting 2 x 25 cps special divvies in the FY20-FY22 years when there's a major gap in their capex but as you can see above Mod is modeling a lot more. A key factor in understanding this company is understanding their enormous cash flow when not expending it on capex which can be around ~ 80 cps per annum.
Its therefore quite possible all factors being equal in a normal operating environment that my five year horizon could see not only 5 years of ~ 20 cps ordinary dividends but potentially more than the 2 x 25 cps special dividends I am modelling. Mod quite correctly called the operating environment as supportive of the SP climbing towards $3 many months ago. He's been far more accurate than the so called professional broker analysts. A lot of people ignored managements statement in their February 2017 conference call that they were confident looking out that we'd passed the high tide mark of yield pressure. I think its worth more than $2.50, how much more who can really say ?... but the long term investment case as far as dividends and specials, (all fully imputed), is concerned is compelling in my view.

[winner69]

$3 beckons by month end - even more if thr profit upgrade comes

[couta1]

$3 beckons by month end - even more if thr profit upgrade comes

I see Simply Wall Street reckon it was overvalued at $2.50, when they reviewed the stock in April. Also seems strange why 4 traders as of yesterday have not budged on their $2.23 target price. Not sure who is right on this one except it's certainly no longer a value buy at current levels, and even less so at $3.

[Beagle]

I see Simply Wall Street reckon it was overvalued at $2.50, when they reviewed the stock in April. Also seems strange why 4 traders as of yesterday have not budged on their $2.23 target price. Not sure who is right on this one except it's certainly no longer a value buy at current levels, and even less so at $3.

N.Z. analysts have a VERY poor record with AIR. As we saw with the recent investor day presentation most of the non Govt controlled stock is owned by overseas institutions.
They clearly think its worth far more than N.Z. analysts possibly because they're basing their valuation on international metrics. AIR is line ball fair value with QAN on a PE basis and that's after QAN have upgraded guidance whereas AIR haven't. As we saw this week there's very solid demand on the two new routes AIR opened up last year to South America and Houston. They're now running 9 Dreamliners with 4 more to come incl another leased one and six more options after that. Real bean counters aircraft they are, churn out heaps of cash. Discounted cash flow valuations are only as good as a whole bunch of guesses and assumptions that underpin their calculations.

http://www.stuff.co.nz/business/9251...ay+13+May+2017

[Beagle]

$3 beckons by month end - even more if thr profit upgrade comes

Air China scales back....AIR N.Z. expands...Jetstar confirms no plans to expand routes...last week Qatar threatened to throw their toys out of the cot if laptop's were banned.
Looks like management were bang on the money when they recently said we're passed the high tide of competition intensity and its impact on yield
https://www.nbr.co.nz/article/carry-...%252520edition
If they can make over half a billion, (second highest ever) in the year in which intensity is at its most severe...