AIR - Air NZ.

**Arbroath** · 22-08-2019, 10:20 AM

Originally Posted by Beagle

http://nzx-prod-s7fsd7f98s.s3-websit...567/305887.pdf
Revenue, average analyst expectation $5.76b, actual result $5.8b - meet expectations
Operating Profit, average analyst expectation $365m actual result $374m - beat expectations
Net Profit after tax , average analyst expectation $254m, actual result $270m - beat expectations
FY20 outlook, average analyst expectation $420 operating profit, guidance $350m - $450m, mid point $400m - softer outlook
Dividend maintained.

Net effect is neutral and I maintain my holding for dividend yield and am not expecting any break out of the recent trading range.

And what a great yield it is Beagle...gross 11.2% at $2.72
I think they can maintain it for several years and they keep referring to the ordianry dividend as sustainable which I think they believe.
Add in the young fleet age and relatively lowm capex in the next 3-4 years and it is easy to see with their operating cash flow that a dividend cut is relatively unlikely and there is always the prospect of a special dividend at some stage as gearing falls back again.
Agree, a breakout over $3 is unlikely but I'm a happy holder at these levels for the yield in a low rate world.

**Blue Skies** · 22-08-2019, 10:47 AM

Originally Posted by Arbroath

And what a great yield it is Beagle...gross 11.2% at $2.72
I think they can maintain it for several years and they keep referring to the ordianry dividend as sustainable which I think they believe.
Add in the young fleet age and relatively lowm capex in the next 3-4 years and it is easy to see with their operating cash flow that a dividend cut is relatively unlikely and there is always the prospect of a special dividend at some stage as gearing falls back again.
Agree, a breakout over $3 is unlikely but I'm a happy holder at these levels for the yield in a low rate world.

Agreed, and with the Govt (who ultimately controls all the levers) depending on those juicy dividends to continue, am happy to go along for the ride.

**Beagle** · 22-08-2019, 11:26 AM

Originally Posted by Arbroath

And what a great yield it is Beagle...gross 11.2% at $2.72
I think they can maintain it for several years and they keep referring to the ordianry dividend as sustainable which I think they believe.
Add in the young fleet age and relatively lowm capex in the next 3-4 years and it is easy to see with their operating cash flow that a dividend cut is relatively unlikely and there is always the prospect of a special dividend at some stage as gearing falls back again.
Agree, a breakout over $3 is unlikely but I'm a happy holder at these levels for the yield in a low rate world.

Yes it certainly is a fantastic yield in this era of interest rates at unchartered lifetime low's.
In terms of its sustainability. A few thoughts. At the last conference call they noted they had only cut the dividend twice in the airlines history, after 9/11 and the GFC.
Barring another one of those events or some similar sized exogenous shock I think there is a very high probability the dividend is sustainable for the foreseeable future.
Average analyst view is actually for it to increase to 23 cps next year and 24 cps in FY21 https://www.marketscreener.com/AIR-N...07/financials/

As you note, capex for the next 4 years is very benign, mostly about $500m but FY21 under $400m and well below annual depreciation of $567m for FY19 and forecast depreciation of approx. $637m for FY20, (extra $70m expected next year, source, just completed conference call). Over the next 4 years based on my analysis annual average capex is approx. $160m less than depreciation so that gives an interesting insight into their ability to pay ongoing strong dividends in the medium term.

I tend to back out any immediate term dividend, (as partial return of capital invested) from forward yield calculations so my "look through" view on the yield at $2.72 taking a medium term investment view is $2.72 less the almost immediate return of 11 cents = $2.61 net investment for the medium term. 23 cents fully imputed for FY20 = 23 / 0.72 = 31.94 cps gross and on a net investment of $2.61 = 12.2% Gross yield. I am a very happy holder at that level and added more this morning.

**winner69** · 22-08-2019, 12:40 PM

Trust NBR to say this CEO pay up while staff dividend down.

**Raz** · 22-08-2019, 12:49 PM

Originally Posted by Arbroath

And what a great yield it is Beagle...gross 11.2% at $2.72
I think they can maintain it for several years and they keep referring to the ordianry dividend as sustainable which I think they believe.
Add in the young fleet age and relatively lowm capex in the next 3-4 years and it is easy to see with their operating cash flow that a dividend cut is relatively unlikely and there is always the prospect of a special dividend at some stage as gearing falls back again.
Agree, a breakout over $3 is unlikely but I'm a happy holder at these levels for the yield in a low rate world.

The captive domestic market and solid brand appeals to older kiwi's going overseas..if they can't pay the dividend the economy will be heading to hell and that will be an issue for all NZ asset classes.,

**Beagle** · 22-08-2019, 04:32 PM

Agreed Raz. Travel almost a consumer staple now days.
Interesting potential upside for AIR if JetStar pull the regional pin after years of losses. http://www.sharechat.co.nz/article/e...t-closely.html

Very solid result for QAN today. Winner, I reckon AIR are right to undertake some international benchmarking on their operations and if they have to employ outside consults to do so, so be it. Apparently Jayne Herdlicka has been rampant with using outside consultants this year and ATM are so successful that it must be back in vogue again eh

**RTM** · 22-08-2019, 04:33 PM

Get ready for a drop holders, I just topped up to make it 5.57% of my portfolio.
Personally I think the share price may correct higher, as the dividend % is to high.
Yes, I agree, to simplistic.
We’ll see I guess.
And yes Beagle, more than 5%. It did neatly use my cash in DB tho.

**Beagle** · 22-08-2019, 04:44 PM

Originally Posted by RTM

Get ready for a drop holders, I just topped up to make it 5.57% of my portfolio.
Personally I think the share price may correct higher, as the dividend % is to high.
Yes, I agree, to simplistic.
We’ll see I guess.
And yes Beagle, more than 5%. It did neatly use my cash in DB tho.

I tend to back out any immediate term dividend, (as partial return of capital invested) from forward yield calculations so my "look through" view on the yield at $2.72 taking a medium term investment view is $2.72 less the almost immediate return of 11 cents = $2.61 net investment for the medium term. 23 cents fully imputed for FY20 = 23 / 0.72 = 31.94 cps gross and on a net investment of $2.61 = 12.2% Gross yield. I am a very happy holder at that level and added more this morning.

FWIW mate the above was a bit of an understatement as I didn't want to be accused of ramping, probably will be now LOL. I have backed my own analysis and tripled the size of my holding this morning. Yes, tripled, that's not a typo.

12.2% gross and being a dividend hound is like dangling a juicy bone in front of a Beagle, what's he going to do other than bite

6.7% portfolio position now

Now we have a decent holding we must remember to only use paper doggy bag's in the event of extreme turbulence as we wouldn't want to upset the greenie's and use plastic ones ! Seat belt firmly fastened and off we go... Slight concern with not knowing who the new chief pilot is yet but nothing ventured nothing gained...lets see how we go.

Conference call replay available here https://edge.media-server.com/mmc/p/gnvtv7ir