New Zealand Professional Investment Services Firm, Forsyth Barr

Forsyth Barr

New Zealand Professional Investment Services Firm

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

Equity Bottom-Up

<h2>Transport Titbits — A Second Airport for Auckland?</h2>
Air New Zealand (AIR) has reopened the Whenuapai&nbsp;airport debate, one that has been closed for the past decade or so. Whenuapai&nbsp;is RNZAF’s largest air base situated north west of Auckland’s CBD. Auckland Airport (AIA) is the city’s only commercial airport currently. AIR’s public comments around Whenuapai&nbsp;reflect a combination of (1) its dissatisfaction with AIA’s under-investment in recent years, (2) the heavy cost of new infrastructure at AIA, and (3) AIA’s aeronautical pricing which includes the prospect of a runway land charge from FY21.
We consider AIR’s comments as more than a parting shot at AIA from departing CEO Christopher Luxon. It has already undertaken a body of work which suggests it could operate limited commercial flights by the end of next year.
Whenuapai has two runways, the longer of which is 2,031m long, similar to the length of Wellington’s runway. It could comfortably facilitate both domestic jet and twin prop services.
&nbsp;Why it may happen?
First, AIA plans to spend more than NZ$1bn on a new runway over the next 10 years. This may not be necessary if Whenuapai was opened up to commercial traffic. AIA’s need for a new runway is due to its peak capacity constraints. Whenuapai already has a runway and could operate a budget commercial passenger terminal.
Second, AIR would be motivated to use the airport (as could Jetstar) given the likelihood of lower aeronautical charges. Whenuapai would be in a similar regulatory position to regional airports in New Zealand.
Third, the location of the airport would be popular with passengers originating from, or destined for, Auckland’s North Shore. &nbsp;
&nbsp;Why might it not?
&nbsp;First, the Government would need to support the proposal given it owns the air base and controls the air space. It would become a heated political issue, like it did more than a decade ago, both at a local and national level. &nbsp;
&nbsp;Second, in recent years residential housing developments have popped up adjacent to the air base. More residential housing will be built in future. These residents may be subject to increased noise pollution.
&nbsp;Third, transport links would be limited adding to traffic congestion, albeit the existing links to AIA are far from optimal.
&nbsp;Implications for Auckland Airport if it did
Whenuapai would act as a domestic point-to-point airport competing directly with AIA for peak traffic. AIA would remain AIR’s core hub-airport in New Zealand. However, over time Whenuapai could take more domestic traffic away from AIA. This wouldn’t have a significant impact on AIA’s current earnings stream given domestic passengers generate substantially less income on a unit basis than international passengers. However, it would seriously question AIA’s need for its planned Northern runway. This would remove a large chunk of AIA’s capex programme over the next 10-15 years, which would impact its ability to leverage growth in its regulated asset base (RAB) for aeronautical pricing and valuation (as we believe its share price incorporates a material multiple of RAB). &nbsp;
We think the likelihood of Whenuapai becoming a commercial reality is low. However, we wouldn’t totally rule it out as there is some logic to AIR’s arguments.
Andy Bowley
Head of Research&nbsp;
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Transport Titbits — A Second Airport for Auckland?
Air New Zealand (AIR) has reopened the Whenuapai&nbsp;airport debate, one that has been closed for the past decade or so. Whenuapai&nbsp;is RNZAF’s largest air base situated north west of Auckland’s CBD. Auckland Airport (AIA) is the city’s only commercial airport currently. AIR’s public comments around Whenuapai&nbsp;reflect a combination of (1) its dissatisfaction with AIA’s under-investment in recent years, (2) the heavy cost of new infrastructure at AIA, and (3) AIA’s aeronautical pricing which includes the prospect of a runway land charge from FY21.
We consider AIR’s comments as more than a parting shot at AIA from departing CEO Christopher Luxon. It has already undertaken a body of work which suggests it could operate limited commercial flights by the end of next year.
Whenuapai has two runways, the longer of which is 2,031m long, similar to the length of Wellington’s runway. It could comfortably facilitate both domestic jet and twin prop services.
&nbsp;Why it may happen?
First, AIA plans to spend more than NZ$1bn on a new runway over the next 10 years. This may not be necessary if Whenuapai was opened up to commercial traffic. AIA’s need for a new runway is due to its peak capacity constraints. Whenuapai already has a runway and could operate a budget commercial passenger terminal.
Second, AIR would be motivated to use the airport (as could Jetstar) given the likelihood of lower aeronautical charges. Whenuapai would be in a similar regulatory position to regional airports in New Zealand.
Third, the location of the airport would be popular with passengers originating from, or destined for, Auckland’s North Shore. &nbsp;
&nbsp;Why might it not?
&nbsp;First, the Government would need to support the proposal given it owns the air base and controls the air space. It would become a heated political issue, like it did more than a decade ago, both at a local and national level. &nbsp;
&nbsp;Second, in recent years residential housing developments have popped up adjacent to the air base. More residential housing will be built in future. These residents may be subject to increased noise pollution.
&nbsp;Third, transport links would be limited adding to traffic congestion, albeit the existing links to AIA are far from optimal.
&nbsp;Implications for Auckland Airport if it did
Whenuapai would act as a domestic point-to-point airport competing directly with AIA for peak traffic. AIA would remain AIR’s core hub-airport in New Zealand. However, over time Whenuapai could take more domestic traffic away from AIA. This wouldn’t have a significant impact on AIA’s current earnings stream given domestic passengers generate substantially less income on a unit basis than international passengers. However, it would seriously question AIA’s need for its planned Northern runway. This would remove a large chunk of AIA’s capex programme over the next 10-15 years, which would impact its ability to leverage growth in its regulated asset base (RAB) for aeronautical pricing and valuation (as we believe its share price incorporates a material multiple of RAB). &nbsp;
We think the likelihood of Whenuapai becoming a commercial reality is low. However, we wouldn’t totally rule it out as there is some logic to AIR’s arguments.
Andy Bowley
Head of Research&nbsp;




T:


+64 4 495 8246




M:


+64 21 338 941




TF:


0800 367 227




F:


+64 4 495 8193




P:


PO Box: 5266, Wellington 6145








W:


www.forsythbarr.co.nz



Twitter:

@forsythbarr





Transport Titbits — A Second Airport for Auckland?

<h2>Transport Titbits — Reporting Season Themes</h2>
Over the past two weeks a number of NZX listed transport companies have reported their latest financial results including&nbsp;Air New Zealand,&nbsp;Auckland Airport,&nbsp;Freightways,&nbsp;Port of Tauranga,&nbsp;and&nbsp;TIL Logistics. While these companies operate in a wide spectrum of the broader transport market there are a number of common themes that are apparent:
<ul>
<li>&nbsp;Slowing demand&nbsp;–&nbsp;Auckland Airport experienced its lowest passenger growth rate in six years, while Air New Zealand (having already warned of a slowdown in January 2019) has further cut its capacity growth expectations. AIR will cut domestic capacity by -2% to -3% in FY20 given slower domestic leisure demand. TIL Logistics acknowledged that freight growth had slowed during the last six months,&nbsp;while Freightways highlighted the sequential slowdown through this calendar year to date with its parcel volumes declining on both May and June 2019. This doesn’t bode well for the broader economic backdrop given the early cycle nature of Freightways’ volume movements.</li>
<li>Price growth driving margin expansion&nbsp;–&nbsp;price growth has been a feature for several transport companies during FY19 and will continue to be a feature in FY20.&nbsp;Port of Tauranga has begun to pull the price lever, which has been helped by capacity constraints and congestion at Ports of Auckland. Freightways' pricing for effort initiative, which is targeted a +NZ$1.50 increase in B2C (business-to-consumer) parcel prices over the next two years, will significantly enhance B2C margins (which we estimate have been close to 0% historically) if successful.</li>
<li>Return on capital is falling&nbsp;–&nbsp;financial returns at Air New Zealand, Auckland Airport, Freightways and TIL Logistics all declined over the past 12 months, largely reflective of slowing profit growth and increasing capital investment. The one exception was Port of Tauranga, which has been able to leverage its capex bulge of recent years through accelerated cargo growth.</li>
<li>Lower forward earnings expectations&nbsp;–&nbsp;consensus forward earnings expectations have been cut for Air New Zealand, Auckland Airport, Freightways, and Port of Tauranga following their respective FY19 results. The deepest cut was for Air New Zealand reflective of first time earnings&nbsp; guidance for the year ahead. While the sector may be bracing for a more challenging volume environment with greater focus on cost control, market valuations remain at elevated levels and continue to be supported by lower bond rates.</li>
</ul>

Andy Bowley
Head of Research&nbsp;
<table class="table table-striped">
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</td>
<td>
+64 4 495 8246
</td>
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M:
</td>
<td>
+64 21 338 941
</td>
</tr>
<tr>
<td>
TF:
</td>
<td>
0800 367 227
</td>
</tr>
<tr>
<td>
F:
</td>
<td>
+64 4 495 8193
</td>
</tr>
<tr>
<td>
P:
</td>
<td>
PO Box: 5266, Wellington 6145
</td>
</tr>
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<td></td>
<td></td>
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W:
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<a href="http://www.forsythbarr.co.nz/" target="_blank" data-saferedirecturl="https://www.google.com/url?q=http://www.forsythbarr.co.nz&amp;source=gmail&amp;ust=1567225054567000&amp;usg=AFQjCNG04zc-GdIwkHE_kOOWzMwbv3QwZA" rel="noopener">www.forsythbarr.co.nz</a>
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<td>Twitter:</td>
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<a href="http://twitter.com/forsythbarr" target="_blank" data-saferedirecturl="https://www.google.com/url?q=http://twitter.com/forsythbarr&amp;source=gmail&amp;ust=1567225054567000&amp;usg=AFQjCNFxzh9cOLtYGb-RKxSu8b28oIvWlg" rel="noopener">@forsythbarr</a>
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Transport Titbits — Reporting Season Themes
Over the past two weeks a number of NZX listed transport companies have reported their latest financial results including&nbsp;Air New Zealand,&nbsp;Auckland Airport,&nbsp;Freightways,&nbsp;Port of Tauranga,&nbsp;and&nbsp;TIL Logistics. While these companies operate in a wide spectrum of the broader transport market there are a number of common themes that are apparent:

&nbsp;Slowing demand&nbsp;–&nbsp;Auckland Airport experienced its lowest passenger growth rate in six years, while Air New Zealand (having already warned of a slowdown in January 2019) has further cut its capacity growth expectations. AIR will cut domestic capacity by -2% to -3% in FY20 given slower domestic leisure demand. TIL Logistics acknowledged that freight growth had slowed during the last six months,&nbsp;while Freightways highlighted the sequential slowdown through this calendar year to date with its parcel volumes declining on both May and June 2019. This doesn’t bode well for the broader economic backdrop given the early cycle nature of Freightways’ volume movements.
Price growth driving margin expansion&nbsp;–&nbsp;price growth has been a feature for several transport companies during FY19 and will continue to be a feature in FY20.&nbsp;Port of Tauranga has begun to pull the price lever, which has been helped by capacity constraints and congestion at Ports of Auckland. Freightways' pricing for effort initiative, which is targeted a +NZ$1.50 increase in B2C (business-to-consumer) parcel prices over the next two years, will significantly enhance B2C margins (which we estimate have been close to 0% historically) if successful.
Return on capital is falling&nbsp;–&nbsp;financial returns at Air New Zealand, Auckland Airport, Freightways and TIL Logistics all declined over the past 12 months, largely reflective of slowing profit growth and increasing capital investment. The one exception was Port of Tauranga, which has been able to leverage its capex bulge of recent years through accelerated cargo growth.
Lower forward earnings expectations&nbsp;–&nbsp;consensus forward earnings expectations have been cut for Air New Zealand, Auckland Airport, Freightways, and Port of Tauranga following their respective FY19 results. The deepest cut was for Air New Zealand reflective of first time earnings&nbsp; guidance for the year ahead. While the sector may be bracing for a more challenging volume environment with greater focus on cost control, market valuations remain at elevated levels and continue to be supported by lower bond rates.


Andy Bowley
Head of Research&nbsp;




T:


+64 4 495 8246




M:


+64 21 338 941




TF:


0800 367 227




F:


+64 4 495 8193




P:


PO Box: 5266, Wellington 6145








W:


www.forsythbarr.co.nz



Twitter:

@forsythbarr





Transport Titbits — Reporting Season Themes

New Zealand

Air New Zealand Limited operates an airline business that provides international and domestic air passenger and cargo transport services throughout New Zealand and the South West Pacific. The Company also provides engineering and ground handling services.

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Air New Zealand (AIR NZ)

Transport Titbits — A Second Airport for Auckland?

Transport Titbits — A Second Airport for Auckland? Air New Zealand (AIR) has reopened the Whenuapai airport debate, one that has been closed for...

Forsyth Barr

Transport Titbits — Reporting Season Themes

Transport Titbits — Reporting Season Themes Over the past two weeks a number of NZX listed transport companies have reported their latest financial...

Forsyth Barr

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)