AIR - Air NZ.

[winner69]

"...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...

key bit is .....enable the company to pay out a sustainable dividend of AUD 0.20 per year through the cycle

[Raz]

key bit is .....enable the company to pay out a sustainable dividend of AUD 0.20 per year through the cycle

That well may be only a few words however to be in a position to achieve that with an airline is quite unique and an excellent return.

[Beagle]

key bit is .....enable the company to pay out a sustainable dividend of AUD 0.20 per year through the cycle

Sure they meant Kiwi 20 cents but yeah..this is pretty unique in the airline industry so makes HLG and AIR almost dead heat first equal on the NZX for highest forecast dividend yield...guess I must be a glutinous hound at heart as I hold both

[winner69]

Sure they meant Kiwi 20 cents but yeah..this is pretty unique in the airline industry so makes HLG and AIR almost dead heat first equal on the NZX for highest forecast dividend yield...guess I must be a glutinous hound at heart as I hold both

In that analyst web cast Rob let slip NZ25 cents before checking himself and saying something around 20 cents ......or something like that

[Beagle]

An exchange rate over $U.S.70c lowers their balance sheet footings in terms of overseas debt and capitalised lease obligations and will improve their gearing.
Again reported in the NBR that their capex is just over $2b in the next few years but as previously mentioned this is only circa $600 - $700m more than the normal rate of fleet depreciation over that timeframe so net capex is really not such a frightening figure at all especially viewed in the context that they had paid $520m in aircraft deposits already as at 30 June 2015.

Further, we know this is the peak of the earnings cycle. Provided the VAH sale gets the necessary Chinese authorities approval I think we can take it as a given that there will be a special dividend this year, (management were stung by shareholder criticism that there wasn't one last year and I am sure they don't want widespread contempt to reveal itself at the next annual meeting) and there is the very real prospect it'll be bigger than the usual 10 cps paid in various years in the past. The sale proceeds by my calculations, (again not relying on media reports) are 25 cents Kiwi per share less transactions costs so taking into account its been a record year for profit anyway with low oil prices and the fairly miserable interim dividend I see no reason why they can't pay the lot out but they probably won't. Management will probably have some "highly desirable" environmentally friendly pet project they want to fund so maybe us lowly shareholders, (you know the poor sods that they're actually supposed to be running this business for) might be lucky to get a special of 10 - 15 cps ?

Prospects for a final dividend. I think 10-12 cps. Best guess of total, 20-27 cps..risk is probably skewed slightly to the upside. Full imputation credits will apply to dividend(s) paid, that's the one and only thing you can be absolutely certain of.

For 10 June 2016. Pleased to be proven wrong and very pleased they paid the lot out. Wonder what influence the majority shareholder had in this decision if any ? Make Govt's FY17 books look better in the run up to the election. Very happy to be partnering with the Govt on this occasion and happy for my books too

[BlackPeter]

key bit is .....enable the company to pay out a sustainable dividend of AUD 0.20 per year through the cycle

Isn't another key bit that its not unheard of that MorningStar gets it wrong?

Sure, you can't rely on that either ... but anybody promising a sustainable dividend over several years in an industry so dependant on economic cycles, fuel prices low, (pilots, ground staff, air controller, border control staff) strikes (or the lack thereof), terrorists playing it nicely, war parties not taking down civil planes, viruses stopping to mutate, pilots controlling their mental illnesses, volcanoes remaining calm must have a truly amazing crystal ball!

In the last seven years AIR had only three years (the last three) where EPS was above 20 cents (which would be sort of a minimum requirement for a sustainable dividend of 2-0 cents pa):

2016 41 cts
2015 29 cts
2014 24 cts
2013 17 cts
2012 7 cts
2011 8 cts
2010 8 cts

OK - so, this is a cyclical industry, competition is heating up, AIR have no moat whatsoever, major cost factors (fuel) are outside of their control as is the demand (which goes off the discretionary budget of most travellers). And MorningStar claims that they will be able to sustain-ably pay a dividend which is higher than the average EPS over the last 7 years?

Hmm ...

[see weed]

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

Forgot to mention all the mum and dad investors saving up to buy a rental, and hearing about all these big divs. coming up, might think, wow, lets buy some AIR in the meantime to boost our savings.

[winner69]

A year ago share price about 250 after announcing earnings of 29 cents and dividend of 9.5 cents

Today share price is 225 - eps of 51 cents and dividends of 35 cents

Market sentiment towards AIR really really bad - PE fallen from 8.6 to 4.4

Market never gets wrong?

[BlackPeter]

Kind of convenient for you that many of those years the airline industry was still recovering from the effects of the GFC.

I would have thought that 7 years is a quite appropriate period to look at for a cyclical industry. As well - while I am not a supporter of the latest doomsday theory (whatever it is), would I think it would be quite prudent to expect during any 7 to 10 year period some sort of downturn (strictly looking into the future) - so whats the problem with picking 2010 to 2012 together with 2013 to 2016)?;

Myopic negative backward looking vision opining without any meaningful research is getting very old...
I get it that you only like buying airlines right at the bottom of the cycle and I am pretty sure everyone else has got that too.

Hmm - I think you start to take this discussion a bit too personal. If you feel the need to put down your fellow posters just because you don't like what they say, than maybe it is time to assess whether you've fallen in love with your share? Not a recommended practise ;

If I look at the market - it currently seems to be sitting on the fence. Sure - there are lots of people who think the share is undervalued (I suppose that's the people buying), but there seems to be a similar number of people thinking it is overvalued (that's the sellers) - if these people wouldn't balance, the SP would rise (or drop).

Are you sure, you don't want to know what the other half is thinking?

[Beagle]

Forgot to mention all the mum and dad investors saving up to buy a rental, and hearing about all these big divs. coming up, might think, wow, lets buy some AIR in the meantime to boost our savings.

Funny you bring that up. I got to thinking over the weekend about my clients that still own their Auckland rental properties.
On an average price of about $900K if the tenant pays 52 weeks rent and if they don't do major damage or start a P lab an average investor might expect to earn circa $20K after known cash flow expenses, about $400 per week after heinous rates and insurance costs. That diminishes further when one takes into account regular maintenance required as well as a share of deep cycle maintenance approx. every ten years, full repaint and refurbishment inside and out which often runs to $40 - 50K, so after allowing for a one tenth share of deep cycle maintenance every ten years for all the investors hard work managing the property they might get a real return after costs and provisions of $15K less tax at 33% gives them $10K net.

On the other hand if one were to invest $900K in AIR shares at $2.25 - 0.35 expected divvy = theoretical ex divvy price of ~ $1.90 they'd buy `$474K shares and be looking at tax paid sustainable returns of ~95K per year for no work and no risk of a P lab....and yet some people think those taking a large poorly diversified position in AIR are crazy...I'll tell you who the crazy ones are hoping they'll get even fatter on further house price increases... One investment buys you a very small return for a lot of work and the other a comfortable retirement for no work. Hmmm