New Zealand Professional Investment Services Firm

Forsyth Barr

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.

New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>Air New Zealand</h2>
Slower Growth Environment &nbsp;
Air New Zealand’s (AIR) latest operating stats show continued subdued trading albeit it is cycling a strong prior year trading period.
<ul>
<li>Revenue: We calculate that September 2019 passenger revenue growth was ~+2.5% compared to September 2018, below our FY20 passenger revenue growth forecast of ~+4.6%. While we recognise downside risk to our forecasts, in the absence of any revisions, our estimates assume passenger revenue growth of ~5% for the remainder of FY20.</li>
<li>RASK (revenue per available seat km): September 2019 group RASK declined ~-1%, with short-haul (~+1%) far more healthy than long-haul (~-3%).</li>
<li>Capacity: September 2019 capacity growth of ~+4% is marginally below FY20 capacity guidance of ~+5%. Long-haul capacity increased +6% in September 2019 while short-haul grew by +1%. Long haul is likely to remain above short haul capacity growth through FY20.</li>
</ul>
Our view
September’s passenger revenue growth (~+2.5%) is below AIR’s 2H19 run-rate (~+5%) and our forecast for FY20. With tough prior year revenue growth comparatives to continue for the next two months (Oct-Nov 2018 revenue growth of ~+8% and ~+7% respectively), the near term operating statistics outlook may continue to be subdued.
AIR is trading at ~10x one year forward PE and offers a ~8.0% cash dividend yield, which is fair in our opinion, given its small premium to Qantas and the current risk/reward backdrop. We retain a NEUTRAL rating but continue to see earnings and valuation risks to the downside.
Andy Bowley Head of Research Forsyth Barr Limited
T:&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;+64 4 495 8246 M:&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; +64 21 338 941 TF:&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;0800 367 227 F:&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;+64 4 495 8193 P:&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;PO Box: 5266, Wellington 6145 W: &nbsp;&nbsp; &nbsp;&nbsp; &nbsp;&nbsp; &nbsp;&nbsp;<a href="https://foundry.smartkarma.com/www.forsythbarr.co.nz" target="_blank" rel="noopener">www.forsythbarr.co.nz</a> Twitter: @forsythbarr

Air New Zealand
Slower Growth Environment &nbsp;
Air New Zealand’s (AIR) latest operating stats show continued subdued trading albeit it is cycling a strong prior year trading period.

Revenue: We calculate that September 2019 passenger revenue growth was ~+2.5% compared to September 2018, below our FY20 passenger revenue growth forecast of ~+4.6%. While we recognise downside risk to our forecasts, in the absence of any revisions, our estimates assume passenger revenue growth of ~5% for the remainder of FY20.
RASK (revenue per available seat km): September 2019 group RASK declined ~-1%, with short-haul (~+1%) far more healthy than long-haul (~-3%).
Capacity: September 2019 capacity growth of ~+4% is marginally below FY20 capacity guidance of ~+5%. Long-haul capacity increased +6% in September 2019 while short-haul grew by +1%. Long haul is likely to remain above short haul capacity growth through FY20.

Our view
September’s passenger revenue growth (~+2.5%) is below AIR’s 2H19 run-rate (~+5%) and our forecast for FY20. With tough prior year revenue growth comparatives to continue for the next two months (Oct-Nov 2018 revenue growth of ~+8% and ~+7% respectively), the near term operating statistics outlook may continue to be subdued.
AIR is trading at ~10x one year forward PE and offers a ~8.0% cash dividend yield, which is fair in our opinion, given its small premium to Qantas and the current risk/reward backdrop. We retain a NEUTRAL rating but continue to see earnings and valuation risks to the downside.
Andy Bowley Head of Research Forsyth Barr Limited
T:&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;+64 4 495 8246 M:&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; +64 21 338 941 TF:&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;0800 367 227 F:&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;+64 4 495 8193 P:&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;PO Box: 5266, Wellington 6145 W: &nbsp;&nbsp; &nbsp;&nbsp; &nbsp;&nbsp; &nbsp;&nbsp;www.forsythbarr.co.nz Twitter: @forsythbarr

Air New Zealand: Slower Growth Environment 