Daily ShareChat: Auckland International Airport

Auckland International Airport's (AIA's) purchase of a 25% stake in North Queensland Airports (NQA) for $166 million is "an expensive experiment," says Goldman Sachs JB Were analyst Marcus Curley.

"Our analysis suggests expected equity returns on NQA over the next five years are likely to fall short of AIA's target of mid-teens," Curley says. He has more conservative medium-term passenger volume forecasts for the Cairns airport.

"At this stage, we have not incorporated any additional synergy benefits between NQA and AIA. In particular, we struggle to see how a shareholding in NQA materially enhances the effectiveness of route development in Auckland," Curley says.

He has lowered his earnings estimates for the year ending June 2011 by 5%, although he says the level of cash earnings dilution will be minimal due to dividends from NQA are expected to substantially exceed net profit under the current distribution policy.

He has also cut his valuation by 10 cents to $2.15 a share. Any significant share price weakness may provide a buying opportunity but "before moving more positive, we would need to gain comfort that AIA does not plan to pursue further sizeable airport acquisitions without tangible evidence that its step-out strategy is creating value for shareholders."

BROKER CALL:  Goldman Sachs JB Were rate Auckland International Airport as hold.

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