AIR - Air NZ.

[skid]

Window normally opens 1 trading day after the release of the financials. If I remember correctly Tony Cater and another director were buying at the last opportunity before trading window closed in the 220's somewhere.

I've been thinking about their ability to pay sustainable dividends of 20 cps per annum going forward in terms of their balance sheet strength and future net capex, (obviously satisfactory future earnings are also required).

Noted in accounts progress payments on new aircraft $420m. Will help towards $2.1b in capex over the next 5 years. In fact reflecting on my earlier post where I outlined net capex, excerpt reproduced below (real new capex after ordinary expected depreciation), you can see that the next 3 years which is the final hurdle to jump in the fleet replacement programme before their average age of aircraft comes down to a very low age of only 6.2 years), average age world-wide according to IATA is 9.9 years, we can see that the next 3 years total net effective capex is $370m but they have deposits on aircraft on order of $420m so in effect the company in terms of payments remaining on fleet modernisation programme the company has a net negative new capex payments required over the next 3 years of $50m ! Oh joy, here I was thinking they might struggle over the next 3 years a bit with peak cycle capex but of course I initially forgot to factor in existing progress payments on new aircraft already made. The $420m deposits is hugely relevant.

After Fy19 as noted earlier in my posts and as shown below they're really in "free cash flow clover" then in terms of free cash flow with effectively hundreds of millions of dollars per annum of net negative capex for 5-6 years.
Conclusion: Subject to satisfactory profitability in terms of their balance sheet strength and gearing and future capex The company appears to be very well positioned to pay high sustainable dividends going forward especially seeing as they had $1.6 billion in cash at balance date, and a further ~$140m odd repaid from their shareholder loan to Virgin on 4 August.


Conclusion, although a high risk stock this is a dividend hounds dream with projected gross dividend yield in the high teens (percent per annum) and it appears to be sustainable going forward subject only to reasonable level's of profitability.

Another minor little little tidbit from the accounts, in addition to taking a charge on the sale of their stake in Virgin they wrote down their remaining stake to 20.5 cps and expensed this within the accounts.
They subscribed for their 1:1 entitlement at 21 cps so they now have a stake of 2.5% or 205.8m shares valued at 20.75 cps in their balance sheet. Future gains or losses around the carrying value are to be included or expensed as other income other expense.

As at Friday 26th, (reporting day) when Virgin closed at 23.5 cps, if AIR's stake was marked to market (which it will be each balance date) they are presently sitting on an unrealised gain of $A5.66m.

So its ''subject to reasonable levels of profitability'' vs ''Air New Zealand is warning of a sharp drop in underlying earnings''----Is a sharp drop still a reasonable level of profitability?--I guess that is the question.
I think it would be a stretch to think we will go back to the ''pushing $3'' level ,given that Air New Zealand themselves are warning us of a ''sharp drop'' in earnings.---Thoughts?
(If only PEB and some others would be so forthcoming with their information)

[Snow Leopard]

It is at least nine years since I have flown with Air New Zealand, though I did see one of their jets queueing for takeoff at Shanghai in February.

But I was reminded this evening that they used to, and I now presume still do, offer boiled sweets to their passengers prior to landing.

As I was walking through Singapura Plaza Mall I spied a bunch of black and purple balloons (the balloons were either purple or black, except for the writing, there were no multi-coloured balloons) with "Air New Zealand" written on them coming towards me. The balloons were being carried by one of two young woman, both wearing black Koru logoed T-shirts, and on noticing that I had noticed them I was offered, and accepted, a boiled sweet from the second.

So when I redo my analysis next week my valuation will be increased by 1c due to the 'effective marketing' that Air NZ are undertaking.

It could have been a 5c increase but I failed to obtain a balloon.

Best Wishes
Paper Tiger

[winner69]

Even though part of his posts might be like 'being savaged by a dead sheep' Roger does make some good points, esp around future cash flows

While we get hung up on earnings and PE ratios and all that sort of stuff how much cash a company can generate essentially dictates it value

A few months ago somebody did ask 'how the hell can you value AIR when it has had negative free cash flows for so many years?'. (Free cash flow being operating less investment (capex) cash flows)

F15 was marginally +ve but F16 was +$270m - and from analyst meeting and from what Roger has outlined these free cash flows are going to be very solid going forward - AIR management use the word sustainable a lot in spite of competitive environment and all that stuff.

Bottom line is minimum 20 cent / 25 cent dividend for some time - even with no growth that supports a price of $2.00 / $2.50 (assuming cost of equity of 10% but don't really know if it really is this high)

So in those posts that 'savage like a dead sheep' there is some mongrel

[winner69]

It is at least nine years since I have flown with Air New Zealand, though I did see one of their jets queueing for takeoff at Shanghai in February.

But I was reminded this evening that they used to, and I now presume still do, offer boiled sweets to their passengers prior to landing.

As I was walking through Singapura Plaza Mall I spied a bunch of black and purple balloons (the balloons were either purple or black, except for the writing, there were no multi-coloured balloons) with "Air New Zealand" written on them coming towards me. The balloons were being carried by one of two young woman, both wearing black Koru logoed T-shirts, and on noticing that I had noticed them I was offered, and accepted, a boiled sweet from the second.

So when I redo my analysis next week my valuation will be increased by 1c due to the 'effective marketing' that Air NZ are undertaking.

It could have been a 5c increase but I failed to obtain a balloon.

Best Wishes
Paper Tiger

Some $350m of marketing money goes a long way

But didn't your mum tell you not to accept sweets from strangers - jelly meat yes but boiled sweets a no no

[see weed]

So where to from today? Up, down or sideways. Maybe friends of shareholders piling in today on hearing all about the big div payout. 20c in future divs are pretty good, better than the bank.

[workingdad]

So where to from today? Up, down or sideways. Maybe friends of shareholders piling in today on hearing all about the big div payout. 20c in future divs are pretty good, better than the bank.

a million shares already traded with a vwap of 2.246 so I think it will be similar to Friday but perhaps end positive (that's where the dart landed on the board during my assessment)

[Raz]

So where to from today? Up, down or sideways. Maybe friends of shareholders piling in today on hearing all about the big div payout. 20c in future divs are pretty good, better than the bank.

Not sure... all that is certain is that i'm going out for lunch....god willing. I'm guessing more supply to come online for any demand that occurs.


I will say i appreciate all the comments here including Rodgers, the greatest gift you can give is your time and energy and I really do appreciate it..even if I do not agree.

I'm look at this share more and more as an investment rather than a trading share.

[see weed]

And don't forget the shut off day for big div. pay out is 5pm.Wed. 7/9/16.

[BlackCross]

"...We now forecast 2017 underlying NPBT of NZD 532 million, down 34% on 2016, and NZD 419 million in 2018. Gearing ended 2016 at 49%, well within the 45%-55% target. Although we forecast lower operating profits over the next few years, lower capital expenditure should enable the company to pay out a sustainable dividend of AUD 0.20 per year through the cycle. We revise our fair value estimate to NZD 2.60 per share (from NZD 2.80). At the current price of NZD 2.25, the shares are around 15% undervalued. ...."

Today's MorningStar via ASB...

[Beagle]

So its ''subject to reasonable levels of profitability'' vs ''Air New Zealand is warning of a sharp drop in underlying earnings''----Is a sharp drop still a reasonable level of profitability?--I guess that is the question.
I think it would be a stretch to think we will go back to the ''pushing $3'' level ,given that Air New Zealand themselves are warning us of a ''sharp drop'' in earnings.---Thoughts?
(If only PEB and some others would be so forthcoming with their information)

$500m the mid point of their forecast range gives 32 cps after tax. The reason for my work on free cash flow and capex was to establish whether the company is in a position to pay 20 cps in dividends going forward. $400m, the bottom end of their forecast range gives 25.6 cps. They have the balance sheet strength to pay that dividend for the foreseeable future and they're already broadly in a neutral new capex position relative to depreciation taking into account progress payments already made on new aircraft so perhaps the question is why wouldn't they ? Obviously the Government like their share of cash, (its not an accident they paid out the full proceeds of the Virgin sale). Interestingly on your last point Qan declined to give a profit forecast and last year the company didn't give a half year forecast until the annual meeting at the end of Sept, so as you say its a good thing that they're being so forthcoming so early in the year but people I am sure can understand because its so early in the year they had to give a wide range to account for a wide variety of possible future scenario's, hence the $400 - $600m.

Winner you are absolutely right. This pure bred hound has had to endure listening to highly experienced investors bleating for years that AIR can never make money because of their high current and future capex....to the point where it made my ears hurt. Those investors don't seem to have been able to understand the basic's that AIR are thoroughly modernising their fleet, go figure ?

Now I've shown their capex is broadly neutral for the next 3 years and then we can subsequently look forward to approx half a decade of tremendous cash flow with minimal capex its funny how they've gone quiet isn't it.

If Raz one of our favourite resident horse traders is looking at this stock more and more as an investment maybe long term investment in this airline isn't as crazy as it sounds after all.