Sharechat Logo

Air NZ share price supported by solid dividend yield says Jarden

Wednesday 7th August 2019

Text too small?

Air New Zealand’s solid dividend yield is likely to underpin its share price in the medium term but, with few upside catalysts for earnings outside of fuel prices, Jarden analysts are neutral on the stock.

The national carrier is due to report its full year result on Aug. 22 and Jarden analyst Andrew Steele said despite downgrading guidance on slowing domestic demand, the shares continue to trade at close to their recent price-per-earnings peak and at a premium to the airline sector.

In late May, Air New Zealand said it is targeting 2019 earnings before taxation to exceed $340 million versus prior guidance given in March of between $340 million and $400 million.

Steele said that Air New Zealand offers a net dividend yield of around 8.5 percent versus the S&P/NZX 50 Index’s 3.5 percent.

While there is potential downside risk related to long-haul pricing, decelerating tourism flows and soft cargo tends, “we believe that so long as AIR can maintain its current dividend profile, the shares will receive investment support.”

Air New Zealand shares recently traded up 1.1 percent at $2.70 and fallen 14 percent so far this year. Jarden has a 12-month target price of $2.70, up from $2.60.

Steele said long-haul yield change is one of the most significant uncertainties for Air New Zealand’s short-medium-term earnings. He pointed to generally soft Asian economy airfares and consistently lower airfares into North America.

Regarding demand, he said that while in-bound tourism growth has been an important tailwind for Air New Zealand, “this growth has consistently slowed from its peak in August 2016” and “given the softness in long-haul forward pricing data, we would not be surprised if this in-bound tourism remains lacklustre in the future.”

While the latest ANZ-Roy Morgan survey of consumer confidence fell 6 points in July to 116.4, the lowest reading so far this year and below the historic average of 120.0, Steel said “consumer confidence remains at a level that is supportive of AIR’s capacity growth.”

While he also pointed to declining cargo trends, he still expects a solid cargo result for the financial year that just ended but noted “the sector trend into FY20 is clearly weak.”

On the other side of the ledger, he said oil has been surprisingly stable and is offsetting the softening in underlying momentum.

He said improving fuel prices meant that he lifted his net profit forecast for the year to June 30, 2020 by 14.3 percent to $317 million and by 17 percent in the following year to $361 million. 

However, he lowered his net profit forecast for the year that ended June 30 by 2.8 percent to $261 million. 

(BusinessDesk)

NOTE: please be advised to read full articles from Business Desk Website, you will have to pay a subscription fee on their website.



  General Finance Advertising    

Comments from our readers

No comments yet

Add your comment:
Your name:
Your email:
Not displayed to the public
Comment:
Comments to Sharechat go through an approval process. Comments which are defamatory, abusive or in some way deemed inappropriate will not be approved. It is allowable to use some form of non-de-plume for your name, however we recommend real email addresses are used. Comments from free email addresses such as Gmail, Yahoo, Hotmail, etc may not be approved.

Related News:

Supplements, skincare firm poised for reverse listing
NZX, EEX eye carbon auction opportunity
A2 Milk boss steps down, shares fall 7.7%
NZX says operating earnings will reach top of guidance
NZ dollar consolidates weekly gain of more than a US cent
NZ dollar holds gains on improved dairy, bank capital outlook
MARKET CLOSE: NZ shares gain; banks rally on Reserve Bank capital decision
NZ dollar rises; bank capital rules less harsh than expected
RBNZ relaxes capital requirements, allows preference shares, extends phase-in
NZ dollar extends gain amid mixed US data, possible trade progress

IRG See IRG research reports