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Air NZ shares climb to 9-month high as annual profit beats estimates

Thursday 30th August 2012

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The shares climbed 8.4 percent to 97 cents, the highest level since Nov. 30, after net profit fell less than expected to $71 million, or 6.3 cents per share, in the 12 months ended June 30, from $81 million, or 7.6 cents, a year earlier.

That beat the consensus analyst forecast of $44.5 million. Stripping out the impact of unrealised movements in derivatives for its hedge exposures, earnings fell 16 percent to $69 million.

Pretax profit gained 21 percent to $91 million. The stock is rated an average 'outperform' based on seven analyst recommendations, with a median target price of $1.25. "New Zealand's long-haul travel has been strengthening during this period, and we expect that to continue through to Europe," chief executive Rob Fyfe told a media briefing.

Fyfe said a slowing Chinese economy is becoming more apparent which will have an impact on flights into and out of the world's most populous nation, and Air New Zealand has "built that in to our expectations for our forward plan."

Chairman John Palmer said the airline expects "to deliver a more-than 100 percent improvement in normalised earnings before taxation in the 2012 financial year," which would take pretax profit above $180 million in 2013.

Air New Zealand is among five of the state-owned assets that the National-led government has earmarked for a sell down over the next five years. The company's board declared a final dividend of 3.5 cents per share, or $38 million, payable on Sept. 26.

That takes the annual payout to 5.5 cents, unchanged from 2011. Airlines around the world have been struggling with high fuel prices and dwindling demand for long-haul travel in the global economic slowdown, and trans-Tasman rival Qantas Airways last week reported its first loss since it was privatised in 1995.

Fyfe told a media briefing the airline held about 52 percent of the market share on the trans-Tasman route, ahead of its 50 percent capacity share, which drives "significant economic value" for the airline. "Our financial performance is better than our competitors in this market, and we believe that position is sustainable," he said.

Revenue gained 3 percent to $4.48 billion, just ahead of analyst expectations, with a 3.1 percent gain in passenger sales and a 7.2 percent lift in cargo revenue. The airline increased short-haul passenger numbers 0.6 percent to 11.5 million, while long-haul numbers fell 3.2 percent to 1.6 million.

Total revenue passenger kilometres (RPK) edged up 0.1 percent to 27 million as available seat kilometres rose 0.8 percent to 32.6 million. The airline's yield rose 3 percent to 13.5 cents per RPK. Fyfe said the airline's average domestic fares fell in the year, even as fuel prices and airport charges surged.

The airline has been at loggerheads with airports over the regulated fees they charge, singling out Wellington International Airport as the worst culprit, and Fyfe said it faces a further $25 million lift in landing fees this coming year. Air NZ said it's ahead of schedule on plans for a $195 million uplift in annual performance by 2015 and is now targeting a $250 million annual improvement.

Net debt including off-balance sheet items rose 9 percent to $1.44 billion, and net gearing improved 0.6 percentage points to 46.1 percent. The airline flagged a $65 million contingent tax liability that may lead to a deferred tax asset if its treatment of tax associated with foreign exchange movements in its contracts to buy aircraft isn't adopted by the Inland Revenue Department.

The company didn't quantify potential liabilities if the Commerce Commission's case against it in relation to an alleged air cargo cartel is proved.The shares climbed 8.4 percent to 97 cents, the highest level since Nov. 30, after net profit fell less than expected to $71 million, or 6.3 cents per share, in the 12 months ended June 30, from $81 million, or 7.6 cents, a year earlier. That beat the consensus analyst forecast of $44.5 million.

Stripping out the impact of unrealised movements in derivatives for its hedge exposures, earnings fell 16 percent to $69 million. Pretax profit gained 21 percent to $91 million. The stock is rated an average 'outperform' based on seven analyst recommendations, with a median target price of $1.25. "New Zealand's long-haul travel has been strengthening during this period, and we expect that to continue through to Europe," chief executive Rob Fyfe told a media briefing.

Fyfe said a slowing Chinese economy is becoming more apparent which will have an impact on flights into and out of the world's most populous nation, and Air New Zealand has "built that in to our expectations for our forward plan." Chairman John Palmer said the airline expects "to deliver a more-than 100 percent improvement in normalised earnings before taxation in the 2012 financial year," which would take pretax profit above $180 million in 2013.

Air New Zealand is among five of the state-owned assets that the National-led government has earmarked for a sell down over the next five years. The company's board declared a final dividend of 3.5 cents per share, or $38 million, payable on Sept. 26. That takes the annual payout to 5.5 cents, unchanged from 2011.

Airlines around the world have been struggling with high fuel prices and dwindling demand for long-haul travel in the global economic slowdown, and trans-Tasman rival Qantas Airways last week reported its first loss since it was privatised in 1995.

Fyfe told a media briefing the airline held about 52 percent of the market share on the trans-Tasman route, ahead of its 50 percent capacity share, which drives "significant economic value" for the airline. "Our financial performance is better than our competitors in this market, and we believe that position is sustainable," he said.

Revenue gained 3 percent to $4.48 billion, just ahead of analyst expectations, with a 3.1 percent gain in passenger sales and a 7.2 percent lift in cargo revenue. The airline increased short-haul passenger numbers 0.6 percent to 11.5 million, while long-haul numbers fell 3.2 percent to 1.6 million.

Total revenue passenger kilometres (RPK) edged up 0.1 percent to 27 million as available seat kilometres rose 0.8 percent to 32.6 million. The airline's yield rose 3 percent to 13.5 cents per RPK. Fyfe said the airline's average domestic fares fell in the year, even as fuel prices and airport charges surged.

The airline has been at loggerheads with airports over the regulated fees they charge, singling out Wellington International Airport as the worst culprit, and Fyfe said it faces a further $25 million lift in landing fees this coming year. Air NZ said it's ahead of schedule on plans for a $195 million uplift in annual performance by 2015 and is now targeting a $250 million annual improvement.

Net debt including off-balance sheet items rose 9 percent to $1.44 billion, and net gearing improved 0.6 percentage points to 46.1 percent. The airline flagged a $65 million contingent tax liability that may lead to a deferred tax asset if its treatment of tax associated with foreign exchange movements in its contracts to buy aircraft isn't adopted by the Inland Revenue Department.

The company didn't quantify potential liabilities if the Commerce Commission's case against it in relation to an alleged air cargo cartel is proved.

BusinessDesk.co.nz

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