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>
Winter Revenue Wobbles Continue Through August
Air New Zealand’s (AIR) latest operating stats show continued subdued trading through winter albeit it is cycling a strong prior year trading period.
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<li>Revenue: We calculate that August 2019 passenger revenue growth was ~+3% compared to August 2018, below our FY20 revenue growth forecast of ~+5%. The revenue growth trend has slowed through calendar 2019 given a deteriorating demand backdrop, particularly domestically. However, in August 2019 short haul revenues accelerated to +4%, while long haul fell back to +2%.</li>
<li>RASK (revenue per available seat km): August 2019 group RASK declined ~-1%, with short-haul (~+3%) far more healthy than long-haul (~-4%).</li>
<li>Capacity: August 2019 capacity growth of ~+4% is marginally below FY20 capacity guidance of ~+5%. Long-haul capacity increased +6% in August 2019 while short-haul grew by +1%. Long haul is likely to remain above short haul capacity growth through FY20.</li>
</ul>
Our view
August’s passenger revenue growth (~+3%) 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 (Sep-Oct 2018 revenue growth of ~+8%), the near term news flow outlook may 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&nbsp;
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+64 4 495 8246
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+64 21 338 941
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0800 367 227
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+64 4 495 8193
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PO Box: 5266, Wellington 6145
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Air New Zealand
Winter Revenue Wobbles Continue Through August
Air New Zealand’s (AIR) latest operating stats show continued subdued trading through winter albeit it is cycling a strong prior year trading period.

Revenue: We calculate that August 2019 passenger revenue growth was ~+3% compared to August 2018, below our FY20 revenue growth forecast of ~+5%. The revenue growth trend has slowed through calendar 2019 given a deteriorating demand backdrop, particularly domestically. However, in August 2019 short haul revenues accelerated to +4%, while long haul fell back to +2%.
RASK (revenue per available seat km): August 2019 group RASK declined ~-1%, with short-haul (~+3%) far more healthy than long-haul (~-4%).
Capacity: August 2019 capacity growth of ~+4% is marginally below FY20 capacity guidance of ~+5%. Long-haul capacity increased +6% in August 2019 while short-haul grew by +1%. Long haul is likely to remain above short haul capacity growth through FY20.

Our view
August’s passenger revenue growth (~+3%) 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 (Sep-Oct 2018 revenue growth of ~+8%), the near term news flow outlook may 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&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





Air New Zealand: Winter Revenue Wobbles Continue Through August