Daily ShareChat: Air NZ

By Jenny Ruth

Monday 28th March 2011

Despite Air New Zealand's profit downgrade for the current six months, it should show a strong recovery in the six months ending December as the volatile economic recovery continues and as it benefits from both the Rugby World Cup and its alliance with Virgin Blue, says Geoff Zame, an analyst at Craigs Investment Partners.

The airline doesn't expect to be profitable in the six months ending June due to the impact of the Christchurch and Japanese earthquakes as well as high fuel prices.

Zame has cut his net profit forecast for the year ending June from $136 million to $70 million, factoring in a second-half loss of about $25 million.

He has also cut his 12 month target price for the stock from $1.62 to $1.56, reflecting earnings-per-share revisions.

"We view the fuel price spike as cyclical whilst the balance of probability suggests the earthquakes are of a one-off nature," Zame says.

"We still expect Air New Zealand to benefit from an improving local and global economic backdrop with full-year 2012 earnings and sentiment underpinned by the (volatile) economic recovery, Rugby World Cup, innovative product launches and the Virgin trans-Tasman alliance,” he says.

Key risk include increased fuel prices, New Zealand dollar weakness and a weaker macro backdrop, he says.

Recommendation: Buy.

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