Forum Archive Index - June 2001

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

I've been looking at AIR NZs capital raising requirements, as I think 
this will be the key to where the share price is going in the short 
to medium term.

If we believe the banter in the market, that says $NZ5billion is 
required over the next 5 years, whereas current total shareholders 
funds are only $NZ1.8billion the magnitude of any cash issue or share 
placement becomes apparent.

Lets assume that the fleet/marketing cash requirements are split: 2 
billion for next year and one billion for each of the subsequent 
years.  Using a discount factor of 10% per annum , I come up with a 
present value cash requirement of $NZ4billion.  Assuming that half of 
this money could be borrowed, this means that Air New Zealand's 
immediate capital requirement is for $NZ2billion.

Once the company is recapitalized, this means that some of the built 
in discount of the share price (because of insufficient 
capitalization) will disappear.  

If recapitalization were to be done 'on market' then a 5 for 1 cash 
issue at 40c would raise the required $2billion.  

Based on current AIRVA and AIRVB share prices of $1.05/$1.45, this 
would mean a theoretical share price after such an issue of (5x40c + 
1.05)/6 and (5x40c + 1.45)/6 which come out to  51c /58c for each A 
and B shares respectively.  If we regard 1999s consolidated 
surplus of $214million as achievable again (synergies with Ansett 
*eventually* balance the higher fuel costs and greater competition in 
Australia) perhaps a P/E ratio of 8 for this theoretical AirNZ of 
the future might be appropriate.

There are currently some 570million Air NZ shares on issue, which 
would rise to 3,420million under this hypothetical proposed 
restructuring. So a $214m profit means earnings of 6.3c per share 
which equates to share price of 50c for the A shares and maybe 60c 
for the B shares. (the B shares have traditionally been valued at 20% 
or so more than the A shares).

For the A shareholders this means an expected profit of around 10c 
each on each of their rights, which added to the 'intrinsic 
future value' of the share they had already (this becomes worth 50c 
after the hypothetical restructuring) gives a fair value of the 
current AirNZ shares of 50c + 5x10c = $1.00.  So the market is 
currently (slightly) overvaluing the AIRVA shares

A similar exercise on the 'B' shares, produces an estimate of current 
value of 60c + 5x20c = $1.60.  Which means that the market is 
slightly undervaluing the AIRVB shares.

Given that the current outlook for any sort of dividend from Air New 
Zealand must be slim, it would seem that, in the medium term, 
investors in AIR might do better to swap their AIRVA for AIRVB for a 
few years, at least until dividends resume.   

The other conclusion is that for long term investors, Air NZ is more 
of a 'hold' 'than a 'sell' at current price levels.

I guess for any financial analyst reading, this is a very crude 
analysis but nevertheless one that might deserve some comment.   
Anyone got any? SNOOPY

disclosure:  Holds AIRVA and AIRVB, but mostly the latter.






---------------------------------
Message sent by Snoopy 
e-mail  tennyson@caverock.net.nz
on Pegasus Mail version 2.55
----------------------------------
"You can tell me I'm wrong twice, 
but that still only makes me wrong once."


----------------------------------------------------------------------------
http://www.sharechat.co.nz/          New Zealand's home for market investors
----------------------------------------------------------------------------
To remove yourself from this list, please use the form at
http://www.sharechat.co.nz/forum.shtml.