Daily ShareChat: Air New Zealand

By Jenny Ruth

Thursday 24th March 2011

The magnitude of Air New Zealand's profit downgrade caught him by surprise and the Christchurch earthquake might have been the biggest culprit, given it remains the gateway to the South Island, says Nachiket Moghe, an analyst at Aegis Equities Research which is owned by Morningstar.

The airline blamed the downgrade - it doesn't expect to be profitable in the six months ending June - on the Christchurch and Japanese earthquakes as well as high fuel prices.

"We think Air New Zealand derives around 50% of its profit from domestic operations. Passenger numbers from Japan are expected to decline by 30%," Moghe says.

He has cut his forecast net profit for the year ending June to $69.8 million from $135 million previously. "We continue to forecast a significant rebound in earnings in full-year 2012 on the back of the Rugby World Cup. Consequently our full-year 2012 forecast remains unchanged."

Movements in jet fuel prices remain the biggest risk to his forecasts.

The sell-off of the shares after the profit warning was probably overdone and the stock is likely to recover on the back of improved demand conditions in 2012, Moghe says.

"We continue to see favourable yields on both the short haul and long haul routes. Price increases implemented recently also help."

Recommendation: Buy.

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