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

<ul><li>The strong bounce in Air New Zealand's (AIR) post-COVID earnings is subsiding. FY24 earnings are likely to be materially lower than FY23.</li><li>The recent first time 1H24 earnings guidance points to margin decline driven by moderating yields, lower domestic load factors, higher fuel costs, and sustained labour inflation.</li><li>AIR refers to softening domestic demand, which we expect to seep into international over the course of FY24, given increasing competition and a weakening consumer backdrop. </li></ul>

The strong bounce in Air New Zealand's (AIR) post-COVID earnings is subsiding. FY24 earnings are likely to be materially lower than FY23.The recent first time 1H24 earnings guidance points to margin decline driven by moderating yields, lower domestic load factors, higher fuel costs, and sustained labour inflation.AIR refers to softening domestic demand, which we expect to seep into international over the course of FY24, given increasing competition and a weakening consumer backdrop. 

<ul><li>Air New Zealand (AIR) reported a strong FY23 result, boosted by record passenger yields. It was far from a normal year, AIR fairly labels it an "extraordinary operating environment"; consequently, the result offers few signals as to profit levels for the year ahead.</li><li>The airline's financial backdrop is slowly moving towards the new norm where both costs and yields are materially higher than pre-COVID levels.</li><li>We expect this differential to allow AIR to generate an attractive ROIC in FY24, but lower than FY23, and heading back towards WACC over the medium-term. Trading at ~8x one year forward PE, AIR continues to trade at a material premium (~25%) to Tasman peer Qantas (QAN.AX). ​​​​​​​NEUTRAL.</li></ul>

Air New Zealand (AIR) reported a strong FY23 result, boosted by record passenger yields. It was far from a normal year, AIR fairly labels it an "extraordinary operating environment"; consequently, the result offers few signals as to profit levels for the year ahead.The airline's financial backdrop is slowly moving towards the new norm where both costs and yields are materially higher than pre-COVID levels.We expect this differential to allow AIR to generate an attractive ROIC in FY24, but lower than FY23, and heading back towards WACC over the medium-term. Trading at ~8x one year forward PE, AIR continues to trade at a material premium (~25%) to Tasman peer Qantas (QAN.AX). ​​​​​​​NEUTRAL.

Air New Zealand - FY23 — Steep Ascent, Descending to Lower Altitude

<ul><li>Air New Zealand (AIR) will report its second highest annual profit when it reports its FY23 result on 24 August 2023.</li><li>Successive earnings guidance upgrades during the year leaves underlying PBT at more than NZ$580m (FB: NZ$591m).</li><li>Strong margins have been driven by yield strength as demand remains greater than supply, with easing fuel prices more than mitigating elevated cost inflation and lower cargo revenues.  </li></ul>

Air New Zealand (AIR) will report its second highest annual profit when it reports its FY23 result on 24 August 2023.Successive earnings guidance upgrades during the year leaves underlying PBT at more than NZ$580m (FB: NZ$591m).Strong margins have been driven by yield strength as demand remains greater than supply, with easing fuel prices more than mitigating elevated cost inflation and lower cargo revenues.  

Air New Zealand - FY23 Preview — On Top of the World

<ul><li>Earnings drive share price performance: AIR's share price has historically been very responsive to changes in medium-term earnings expectations. </li><li>The trend is your friend; earnings momentum has been strong </li><li>Demand surprising to the upside: AIR's strong demand recovery is consistent with that experienced internationally. </li></ul>

Earnings drive share price performance: AIR's share price has historically been very responsive to changes in medium-term earnings expectations. The trend is your friend; earnings momentum has been strong Demand surprising to the upside: AIR's strong demand recovery is consistent with that experienced internationally. 

<ul><li>Demand remains robust: AIR will finish FY23 stronger than it had expected when it provided guidance at its 1H23 result in February 2023 and its more recent update in late April 2023</li><li>Softer oil prices supportive: Lower oil prices have bolstered late-FY23 profitability and will help mitigate the impact of lower yields through FY24</li><li>Other cost pressures persist: While oil prices trend lower, other operating costs continue to rise. Staff costs are increasing due to headcount and wages</li></ul>

Demand remains robust: AIR will finish FY23 stronger than it had expected when it provided guidance at its 1H23 result in February 2023 and its more recent update in late April 2023Softer oil prices supportive: Lower oil prices have bolstered late-FY23 profitability and will help mitigate the impact of lower yields through FY24Other cost pressures persist: While oil prices trend lower, other operating costs continue to rise. Staff costs are increasing due to headcount and wages

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.

Air New Zealand (AIR NZ)

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