AIR - Air NZ.

[Beagle]

http://www.4-traders.com/AIR-NEW-ZEA...rier-23460601/

Haven't seen Hoop post for a while but for TA people (even unadjusted for the 25 cps special divvy) its interesting to note the SP now has a break above the 100 day moving average which looks like $2.04.

Fundamentally based on average analyst forecast for FY18, (when all known extra competition will have a full years effect), AIR still trades on a PE of just under 7, compared to a ten year average of about 10.5. I guess those who still hold a negative view, (although being strangely quiet lately), would still be thinking profitability works in multi year trends and profit is headed lower in FY19.

I think that's anyone's guess and its impossible to try and predict profitability in FY19 at this stage. Anyway for what its worth I garner a bit of comfort from the technical's lining up with the fundamental's so added a few more today.

[tony64peter]

Cant beat the double deckers (a380s) There some decent seats in the upstairs section. They give Nzers old rickerty planes, its always the European leg where the modern planes come in. Ones where the videos actually work.

NO airline has ever made money flying the A380. If they had then Airbus would still be building them.As an investor in AIR I'm very glad they never bought them.

[vin]

Liking the way the SP is heading... Tempted to get onboard again. Last time was at $2.70, still holding since then

[Zaphod]

NO airline has ever made money flying the A380. If they had then Airbus would still be building them. As an investor in AIR I'm very glad they never bought them.

The A380 might not have been profitable for Airbus thus far, but it has however been profitable for airlines where the aircraft have been strategically deployed to routes with very high PAX levels and/or capacity constrained airports. Examples of highly successful A380 routes include DBX-LHR, DBX-BKK, SIN-LHR, and there are many others.

AIR's decision not to purchase an A380 is based purely on their own economics for a relatively small regional airline and is not reflective on the aircraft itself.

[Joshuatree]

You answered your question with your next post. The compelling value will eventually shine through but who can predict when... I guess people have to decide for themselves if the turbulence is too much or whether they trust management to stay on board for the long haul. I'm a long haul bloke on this one. Over 30 years of investing has taught me its a very rare thing to find companies this well managed and on these compelling metrics. By any rational comparison with other airlines AIR looks incredibly good value.

That was on the 28th of Feb. A mate has asked me why the s/p has dropped since. My answer is because AIR increased capacity about the same time as competition increased intensely and fares dropped. AIR forecast less profits but still healthy ones(can't find this fig).They also gave one off special div. Also a vey cyclical stock (where are we in the cycle?). Money is being pulled out of NZ back to USA etc.Ive also suggested one more big earthquake and the tourism boom will be over.What else have i missed?.cheers JT

[BlackPeter]

That was on the 28th of Feb. A mate has asked me why the s/p has dropped since. My answer is because AIR increased capacity about the same time as competition increased intensely and fares dropped. AIR forecast less profits but still healthy ones(can't find this fig).They also gave one off special div. Also a vey cyclical stock (where are we in the cycle?). Money is being pulled out of NZ back to USA etc.Ive also suggested one more big earthquake and the tourism boom will be over.What else have i missed?.cheers JT

You mentioned the cyclical nature of the share - and given that analysts assume earnings to drop next year and the year after does it make sense for the SP to keep dropping;

Some (too many) of their management are using their share options as ATM machine and sell their shares as fast as they get their hands on them. If they don't believe in the stock - why should the market?

[Beagle]

I think everyone was surprised this year by the extent of the new competition coming to N.Z. That said I think that's been fully factored into analysts forecasts for FY17 and FY18.
Looking at FY18 as mentioned earlier we're at a PE of 7 vs a long run average of 10.5, (could make a case for using 11-12 based on ultra low interest rates).
a)Those with a negative bias would probably say that we're still headed lower in cyclical earnings for Fy19 hence the PE discount to long run average.
b)Those with a positive bias would make the case that if they can hit those Fy18 projections with the full force of all the new competition that could be the new cyclical low.
c) And then there's those investors who'd probably say they have no clue one way or the other on Fy19 earnings and they could be either higher or lower than Fy18 with a 50 / 50 probability so on the balance of probabilities AIR is cheap at present due to the fact that it trades at such a meaningful discount to its long run average PE

[Bobdn]

BP, I think it's sensible for employees to sell their shares as soon as they get them. It means that they are less exposed to the fortunes of the company. They get their salary from the company after all, no point having all their eggs in one basket.

Some poor Pumkin Patch employees probably thought they were doing the right thing by joining the PP share scheme. Honestly, I'd never advise anyone to join a company share plan and if you happen to get some "free" shares from your company, sell them.

[BlackPeter]

BP, I think it's sensible for employees to sell their shares as soon as they get them. It means that they are less exposed to the fortunes of the company. They get their salary from the company after all, no point having all their eggs in one basket.

Some poor Pumkin Patch employees probably thought they were doing the right thing by joining the PP share scheme. Honestly, I'd never advise anyone to join a company share plan and if you happen to get some "free" shares from your company, sell them.

Hmm - brave. Not even I would dare to compare AIR on this thread with PPL , but yes - I hear what you are saying - and from a "selfish management perspective" do I understand this point of view.

On the other hand - the shareholders of this company don't give their executives additional shares to increase the level of their "overpaid-ness", but to better align management interests with shareholders interests.

If management are however selling their shares as soon as they get them (and are allowed to do so), than they obviously work against the interests of the remaining shareholders, which makes me wonder why a board allows these sort of lolly scrambles for their executives. Maybe the SP tanks because people start realizing that the company is run by a weak, incompetent or selfish board?

A board with any sense would immediately stop this lolly scramble and either cut the freebees for their execs or otherwise arrange for (a adequate) mandatory time for them to hold the shares when they get them. The current schema is just a waste of shareholder funds and contributing to the downtrend.

[Beagle]

Is that the downtrend that you predicted would have us to 82 cents by now BP

Incentive schemes have to be viewed in the context of international norms in this industry. Mr Luxon's base salary for 2016 was $1.47m, short term incentive $1.617m, (I presume a cash bonus), performance rights valued at $808.5K, restricted share rights valued at $700K and superannuation benefits of $120.4K, source page 62 2016 annual financial results.

He's delivering the results, unlike Virgin. May I suggest you do some research on the package that the CEO gets for Virgin and Qantas before making any more disparaging remarks about the board or management. You are talking about a board who's chairman has received some of the highest accolades to be bestowed on any business leader in N.Z.

Further to my comments in response to JT's post yesterday its worth noting that AIR has paid 45 cents per share in fully imputed dividends this year.
The SP performance this year in my view is as much a function of fear over greed as anything else. The market dislikes uncertainty and its the uncertainty created by significant amounts of new competition on AIR routes and the impact on yield that's caused the SP to drop in my view.

I recommend people read note 19 to the financial statements in full to enhance their understanding of the incentive scheme. Extract,

during the year ended 30 June 2016 the group funded the purchase on-market of 13,181,727 shares. The shares were used to settle obligations under employee share-based compensation plans.

Their is not the heavy dilution some are suggesting.
You either pay them a LOT more in cash or you try and tie key executives in with incentive scheme's to help ensure their continuity of employment, AKA "golden handcuffs". Looks like the board's incentive policies are based on pragmatic commercial factors to me. I still dislike them because a part of me thinks they're excessive but at the end of the day they have to attract and retain key talented staff...we wouldn't want our best people going to Qantas or Virgin would we !

Virgin's annual report including extensive remuneration report on how incentives are measured for those that want to drill down into a comparative analysis of incentive scheme's
http://www.asx.com.au/asxpdf/2016092...8sf5fn1rfs.pdf
Short story - The CEO Borghetti in a company that's turning over $5b, (similar amount to AIR) but made the remarkable "achievement" of losing $A224m in a year when conditions were the most favorable for the airline industry for decades, and despite only achieving a 17.5% success rate on his key performance indicators still earned remuneration totalling nearly A$2.9m and that despite the company needing urgent help from its shareholders to recapitalise and stay afloat. Puts Mr Luxon's package in a company making a record ever operating profit of over $800m before tax into perspective in my opinion.