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Daily ShareChat: Auckland International Airport

By Jenny Ruth

Tuesday 20th July 2010

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 Jenny Ruth

Auckland International Airport's acquisition of 25% of Queenstown Airport gives it exposure to the fast-growing tourism market, says Morningstar analyst Nachi Moghe.

International traffic through Queenstown has grown four-fold over the last five years, he says.

"It might also help stem market share loss to Christchurch who has been getting more of the Australian arrivals in the recent past," Moghe says. Queenstown, with its renowned ski slopes, is a popular destination for Australian visitors.

He estimates the investment is likely to generate an internal rate of return in the mid-teens over the long term. The $28 million price Auckland is paying is about 13.1 times earnings before interest, tax, depreciation and amortisation (EBITDA), well below the 18.8 times EBITDA it paid earlier this year for 25% of North Queensland Airports.

"We think this is a sound acquisition done at a reasonable price which should yield good returns over the long run," Moghe says.

However, "the main challenge for Auckland is to return to trend growth in international passenger movements of around 5%. Recession and market share loss to Christchurch hasn't helped," he says.

"Managment is not looking for any more acquisitions until it has bedded down Queenstown and Cairns. It said that is was not looking at building a portfolio of airports."

Recommendation: Hold


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