AIR - Air NZ.

[bottomfeeder]

Well blackcap, I think you are right, there is a real possibility if they can weather the current storm for six months, then this will be a recovery stock. But it will get worse before it gets better. The question is can they financially sustain the unprecedented situation for six months without going back to shareholders for substantial capital injection. Really money down the drain to maintain the brand and infrastructure. Too many unknowns. So any recovery of earnings will be on a much larger capital base. The government will not let it go under. The bad news is also that its not just Air New Zealand's problem. It belongs to the whole airline industry worldwide. Excess planes will have no market value. Airline manufacturers will take many years to increase their depleted manufacturing levels.

[Lease]

Believe or not, AIR NZ will come back.

AIR NZ is one of the best airline companies in the world. As per my research, its operating performance(EBITDA) has not made loss over the last 20 years(1999-2019). During the period, many airline companies made huge loss. Some of them filed bankruptcy, ie, Japan Airline, Southeast Airline, etc.

So we need to put our faith on AIR.

[BlackPeter]

Believe or not, AIR NZ will come back.

AIR NZ is one of the best airline companies in the world. As per my research, its operating performance(EBITDA) has not made loss over the last 20 years(1999-2019). During the period, many airline companies made huge loss. Some of them filed bankruptcy, ie, Japan Airline, Southeast Airline, etc.

So we need to put our faith on AIR.

Absolutely - AIR will be back. However - faith (as well as hope) is not a good investment strategy, and we don't know whether they will need a cash injection (quite likely in my view) - and how much dilution this will provide.

As some of the other posters - I think that it will get worse before it gets better. What is unclear, is whether the current price levels will look a good BUY when reviewing the decision in say 2 or 5 years.

I think however that it is a rather safe bet to predict that the share price will be lower in a month or 2 from now.

[Beagle]

I could offer a totally different picture if you like. Whether I believe it or not does not matter. I love a good debate so lets go mate !

The virus will be about a half year blip. Most commentators are saying a vaccine won't be available until 2021, perhaps well into 2021 so your viewpoint is based on what ?

So AIR profit will be devastated for this half year period. As above, but I add that anecdotal evidence after 9/11 suggests it takes people a long time to return to full confidence of flying...funny how the prospect of death does that to people isn't it ! In could be calendar year 2022 before business returns to normal

However some competition is going to fail, meaning larger market share for AIR post this half year period. There is no question many airlines will fail but AIR's balance sheet is weak and they are a very likely candidate for a bailout

Air will also profit from the oil price plunge when they forward risk their 2021/22 fuel futures. No meaningful benifet until October 2020 at earliest based on current future hedging. I doubt they will make it to that point without a bailout

Since the discount rate is currently so low, the DCF valuation of Air will not be adversely impacted by negative half year earnings, DCF valuation will be dramatically affected by 2 years of major losses
let alone negative FY earnings, if you believe AIR has a future post 2021. It definitely has a future all right. Its just a question of at what price a new massive tranche of shares are issued to the Govt and other shareholders after the desperately needed major capital injection later this year

Some reports suggest up to 50% of people are not turning up to check in for their flights. When some of these flights and forward accommodation bookings run to many thousands of dollars what does that suggest about the level of fear out there ? New bookings have, according to Grant Bradley aviation commentator for the N.Z.Herald, "fallen off the face of a cliff" The company has just withdrawn guidance because it cannot possibly measure the extent of this virus.
Nobody can predict the future with any great certainty but what we do know is that AIR is an incredibly low margin business with very high fixed costs and is facing a prolonged collapse in demand because people fear, (not their financial situation like in the GFC), but Death !

[Lease]

AIR NZ
		Share Price			EPS		PE Ratio
		Low	High				Low	High
2019		2.23	3.41		0.24		9.29	14.21
2018		2.86	3.82		0.347		8.24	11.01
2017		1.71	3.3		0.34		5.03	9.71
2016		2.02	3.26		0.413		4.89	7.89
2015		1.75	3.02		0.292		5.99	10.34
2014		1.32	2.29		0.239		5.52	9.58
2013		0.86	1.55		0.166		5.18	9.34
2012		0.84	1.2		0.065		12.92	18.46
2011		1.01	1.54		0.075		13.47	20.53
2010		0.86	1.5		0.076		11.32	19.74
2009		0.75	1.3		0.02
2008		1.07	2.7		0.21		5.10	12.86
2007		1.08	3.13		0.205		5.27	15.27
2006		1.03	1.43		0.094		10.96	15.21
2005		1.3	2.05		0.21		6.19	9.76
2004		0.48	3.13		0.24		2.00	13.04
					3.232		111.37	196.95
					/15		/15	/15
			Average EPS		0.21547	Average PE	7.42	13.13

I have worked out AIR average eps is 0.215 over the last 15 years. PE range between 7-13. Take the midpoint of PE at 10. The current SP is probably the fair value. So I started to buy AIR under $2 at small parcel. And the more it drops, the more I'll buy.

[Beagle]

Thank you for your analysis but to assume the current situation is in any way average or normal seems "extremely brave".
Its clear the company is facing an unprecedented challenge to its survival. PE of 10 is fine but what is the E ? and when you've worked out what earnings are for FY22, assuming things settle down by then, how many shares are going to be on issue after a massive capital raise so what is eps ?

Just for fun lets assume a 1:1 capital raise later this year at $1 to keep the ship afloat. Eps would then be 21.5 / 2 = 10.75 cps and applying a PE of 10 gives $1.08.
I expect the board will run a much tighter ship in the future after this massive shock so they might pay out only half future earnings or about 5 cps per annum.

Hope the dividend hounds enjoy the forthcoming dividend. Its their last big one for a very long time, in my opinion.

[peat]

2.09 didn’t last long haha

[Blue Horseshoe]

Just found an email from Air New Zealand in my inbox, explaining what they are doing to keep the travelling public during these exciting times safe. They mentioned a couple of things (below) I think are pretty clever ... by providing flexibility and - more importantly - provide insurance cover (obviously only if you buy travel insurance through them, and if there is no negative travel advise) where others don't. This might well make the difference for customers to use the plane again and to prefer AIR to other carriers.

Attachment 11106

Great move - well done, team! I start to like the new CEO.

This could cost them dearly, what does it cost for treatment in a US hospital icu bed per night.

[blackcap]

Thank you for your analysis but to assume the current situation is in any way average or normal seems "extremely brave".
Its clear the company is facing an unprecedented challenge to its survival. PE of 10 is fine but what is the E ? and when you've worked out what earnings are for FY22, assuming things settle down by then, how many shares are going to be on issue after a massive capital raise so what is eps ?

Just for fun lets assume a 1:1 capital raise later this year at $1 to keep the ship afloat. Eps would then be 21.5 / 2 = 10.75 cps and applying a PE of 10 gives $1.08.
I expect the board will run a much tighter ship in the future after this massive shock so they might pay out only half future earnings or about 5 cps per annum.

Hope the dividend hounds enjoy the forthcoming dividend. Its their last big one for a very long time, in my opinion.

What I meant with my DCF and low discount rates is that they tend to make short term "now" shocks less costly in the long run than in the past with high WACC. So even if 2 years of zero profit, it does not affect the 20+ year DCF that much. But I was only offering up an alternative. I did premise it by saying I do not necessarily believe in it. If they are going to require a capital injection then that off course changes the picture completely. I will not be buying at these levels just yet. As for the virus, there is no vaccine yet and for some time to come, but it seems the symptoms are mild in 90% of cases and the mortality rate is higher than normal in the elderly but those elderly do not normally fly anyway. Will be interesting to see if AIR will require new capital. For what its worth, I am flying AIR to Europe via Shanghai and Hong Kong on the way back in August and still planning to go.

[Lease]

Thank you for your analysis but to assume the current situation is in any way average or normal seems "extremely brave".
Its clear the company is facing an unprecedented challenge to its survival. PE of 10 is fine but what is the E ? and when you've worked out what earnings are for FY22, assuming things settle down by then, how many shares are going to be on issue after a massive capital raise so what is eps ?

Just for fun lets assume a 1:1 capital raise later this year at $1 to keep the ship afloat. Eps would then be 21.5 / 2 = 10.75 cps and applying a PE of 10 gives $1.08.
I expect the board will run a much tighter ship in the future after this massive shock so they might pay out only half future earnings or about 5 cps per annum.

Hope the dividend hounds enjoy the forthcoming dividend. Its their last big one for a very long time, in my opinion.

No, Beagle, I didn't assume the current situation is average or normal. I'm looking AIR in five years time and I believe the decision I started to accumulate under $2 will be right.