AIR - Air NZ.

[OldGuy]

That's not really the problem I was alluding to, Birmanboy. The issue is that a lot of the financial analysis and comments made on these boards is divorced from reality. For example, including capex in profit calculations, not understanding how depreciation effects P&L, not understanding the difference between NPAT and underlying earnings, etc etc etc.

Its quite scary to see people post this stuff and for others to potentially make significant financial decisions on the basis of it. Tagging DYOR doesn't really stop people relying on the information provided, consciously or otherwise...

[Beagle]

Perhaps its time for a reminder that the consensus analyst fair value is $2.82...these are highly paid professionals who value companies for a very good living.

[IAK]

Rod Oram's take on Air New Zealand on this mornings Nine to Noon business programme (9.08 mins into the podcast). Air NZ facing increased competition but strategically sound.

http://www.radionz.co.nz/national/pr...tator-rod-oram

[Tony Two Gloves]

Good news, the bottom has been found and now its up, up and away! (fingers and everything else crossed as I am now 0.5 of a cent in profit excl brokerage lol)

[OldGuy]

I can see why this stock has such a high beta - its all over the show!

[skid]

So we are back(almost) to that important 2.35 again------300.000 shares in one go (will we see a management notice tomorrow)--if so ,Geeze,how many do they have?

[noodles]

Noodles - Firstly let me say I normally have the upmost respect for your analysis but I am sorry but in my opinion in this particular instance your figures are fundamentally flawed in a number of ways.

First things first I recommend you should revisit the investor day briefing for an accurate guide to scheduled capex for the next 3 years, the data on 4 traders is woefully inaccurate and at a material divergence to the companies own information provided last Tuesday in their investor day material. I know because I looked into this matter on Friday and noted some major discrepancies.

Secondly if you look at the graph of scheduled committed capex as shown in the investor day presentation you'll realise that AIR is half way through a complete modernisation of its fleet that incorporates significant fleet expansion and by FY19 will have an extremely young average fleet age of only 6.2 years that will be materially expanded from its present capabilities.

My contention is that normalising earnings based on depreciation being normalised because AIR are both significantly expanding and dramatically modernising its entire fleet is a grossly misleading methodology to analyse normalised earnings so I am sorry Noodles but in this case I believe you analysis is fundamentally flawed and without merit.

I note AIR have a policy or writing off their aircraft over their useful life and from time to time when necessary make such revaluations either up or down as considered necessary to ensure their balance sheet values of fixed assets and aircraft show a true and fair view. I have no qualms whatsoever about AIR's depreciation as disclosed in their financial statements and accept it has historically been an accurate guide to the actual utilisation rate of its capital equipment and thus I contend any attempt to normalise earnings on the basis that current and expected depreciation is not a fair representation of asset utilisation is wholly inappropriate. Trust me on this, the accountant in me has been all over this issue like a hawk looking for a feed and there isn't any problem here.

Put more succinctly, if you spoke with AIR management and got the data from them I am 100% confident you would find that if you normalised capex over the years taking out the capex costs of the dramatic fleet expansion and modernisation I am sure you would find that normalised capex was accurately reflected by normal depreciation. If anything normalised capex could be slightly less than depreciation as AIR write their fleet off over 18 years normally but we have a bunch of 21 year old 767-300's still flying well and earning AIR good money that will have extremely low or no remaining book value.

Surely people can understand that when you both substantially modernise and grow your fleet this requires billions of dollars of additional capex. If it were not so AIR would not be presently growing at its fastest pace in its 76 year history while contemporaneous aiming for one of the youngest and most fuel efficient fleets in the world. The PE of 4.2 stands as far as I am concerned...just waiting for the bottom...quite when that is...is the $64,000 question.

Ok, I accept my method of depreciation is flawed. After checking the total assets and depreciation and rate on the plans in the annual report, I think the analysts probably have it right. So depreciation will be $450m this year and tick up is over $500m in 2018. Assuming the new growth initiatives stop and capex falls (as suggested by the presentation), we should see depreciation fall off as well.
Whichever way you look at it, $675m depreciation is too high.

But not wanting to ignore the ebitda margin normalisation aspect of the analysis, I have plugged in a average depreciation of $450m to see what this does to my spreadsheet

For at 16% EBITDA margin

Year	Revenue	Actual EBITDA	Normalised EBITDA	Normalised EBIT	Interest	NPBT	NPAT	eps	EV/EBITDA	EV/EBIT	PE
2018	5818	1157	937	487	87.0	399.8	287.9	0.256	4.0	7.8	9.2
2017	5565	1293	896	446	41.0	405.1	291.7	0.260	4.2	8.5	9.1
2016	5336	1361	859	409	62.0	347.2	250.0	0.223	4.4	9.2	10.6

And then at 19%

Year	Revenue	Actual EBITDA	Normalised EBITDA	Normalised EBIT	Interest	NPBT	NPAT	eps	EV/EBITDA	EV/EBIT	PE
2018	5818	1157	1105	655	87.0	568.4	409.3	0.364	3.4	5.8	6.5
2017	5565	1293	1057	607	41.0	566.4	407.8	0.363	3.6	6.2	6.5
2016	5336	1361	1014	564	62.0	501.8	361.3	0.322	3.7	6.7	7.3

And just for completion Fy16 forecast EBITDA margin of 25.5%

Year	Revenue	Actual EBITDA	Normalised EBITDA	Normalised EBIT	Interest	NPBT	NPAT	eps	EV/EBITDA	EV/EBIT	PE
2018	5818	1157	1484	1034	87.0	946.6	681.5	0.607	2.5	3.7	3.9
2017	5565	1293	1419	969	41.0	928.1	668.2	0.595	2.7	3.9	4.0
2016	5336	1361	1361	911	62.0	848.7	611.0	0.544	2.8	4.1	4.3

So can the discussion now move onto what a sustainable EBITDA margin is? Can we expect 20%+ EBITDA margins going forward. Alternatively, should we expect a contraction back to 9% that was experienced post GFC?

[Baa_Baa]

So we are back(almost) to that important 2.35 again------300.000 shares in one go (will we see a management notice tomorrow)--if so ,Geeze,how many do they have?

The close at 5:02pm was shaping up to be $2.326 with 61k through, then that 300k parcel trumped it at 5:09pm $2.358 a smidge above the resistance! (stockness data). Nevertheless all day it recovered from the Monday close and since 2:30pm it traded above resistance so there sure is a bull/bear battle going on right around where the TA's would expect to be. Bulls will interpret as a price bottom forming for the up-leg, bears will interpret it's a backtest on the way to next level support. Fascinating.

[babymonster]

a bit hard to say what will happen tomorrow. Still in oversold territory.

[trader_jackson]

Not sure if its already been posted, but the holders etc might be interested:

http://www.afr.com/street-talk/catha...0160509-goplu2

Bit of talk on the street (or should I say the runway? )
Link gives the gist of it away, remember to do the old stop refreshing/loading trick...

"some think Air New Zealand's timetable for receiving $300 million or more from the sale of the Virgin stake might be overly ambitious now that the federal government has gone into caretaker mode. Many of the deal permutations would need the approval of the Foreign Investment Review Board and the Federal Treasurer, whether that is Scott Morrison or Labor's Chris Bowen."
- Remember guys, its election time in aussie as well...