Stocks’ Details
 

Auckland International Airport Limited

Increase in International Passengers:Auckland International Airport Limited (ASX: AIA) is engaged into the airport operations. The market capitalisation of the company stood at ~A$10.88 Billion as on 11th July 2019. Recently, the company via a market release, updated about the passengers’ traffic for the month of April.  The company witnessed total passenger growth of 1.8% in April 2019. It reported a rise of 2.3% and 2.4% of international passengers (ex-transits) and domestic passengers, respectively against April 2018. The international passenger growth was resulted by the shift in the timing of Easter and school holiday period from late March in 2018 to mid-April 2019.
 
On the other hand, the total passengers in March 2019 were almost the same as last year. International passengers (excluding Transits) witnessed a decline of 0.7% in the same period as compared to March 2018. However, domestic passengers increased by 1.1% in comparison to March 2018.
 

Total Passengers Update for April 2019 (Source: Company Reports)
 
What to Expect: The company anticipates capex to be in the range of $280Mn to $330Mn and underlying NPAT (Net Profit After Tax) between $265Mn and $275Mn for FY19. The company further stated that the provided guidance is subject to any material adverse events, significant one-off expenses, non-cash fair value changes to the property and any deterioration because of global market conditions or other unforeseeable circumstances.
 
Stock Recommendation: The gross margin of AIA stood at 86.1% in 1H FY19 against the industry median of 60.2%. Auckland International reported a net margin of 39.7% in 1H FY19 as compared to the industry median of 28.1%. This implies that AIA is effectively converting its topline into the bottom line. Looking at the past price performance, it had yielded returns of 6.78% and 18.16% in the time span of one month and three months, respectively. The stock is currently trading closer to its 52-week high.It reported a higher TTM P/cash flow multiples of 30.2x against the industry median of 20.5x, indicating the stock to be overvalued. Hence, considering the aforesaid facts, stretched valuation and current trading level, we give an “Expensive” rating on the stock at the current market price of A$9.040 per share (up 0.668% on 11 July 2019).
 

Sydney Airport

Traffic Performance in May 2019, up 2.4%: Sydney Airport (ASX: SYD) is owned by Sydney Airport Limited (SAL) and has a market capitalisation of A$18.26Bn as on 11 July 2019. As per the release on 20 June 2019, the total number of passengers increased by 2.4% in May 2019 against May 2018. International passengers increased by 6.3% to ~1.3 million passengers in the same time period last year. The growth was supported by increased demand and subsequent load factor increase across most destinations. The domestic passengers increased by 0.3 percent to 2.2 million in May 2019.


Traffic Performance (Source: Company Reports)

Future Aspects: SYD is well placed to maximise opportunities and growth. The company would continue to deliver on the core business while being flexible and adaptable according to changing market conditions. The company had announced distribution guidance of 39 cents per stapled security for FY19. It is anticipating a 3-year capital expenditure (2019-2021) to be in the range of $0.9Bn-$1.1Bn and capital expenditure for FY19 between $390Mn and $440Mn.

Stock Recommendation:  EBITDA margin of SYD stood at 80.9% in FY18 against the industry median of 47.2%. The return on equity reported by SYD was 103.3% in FY18 as compared to the industry median of 10.7%. This represents that Sydney Airport is providing better returns to shareholder against the broader industry. On the stock’s performance front, it produced returns of 4.25% and 11.89% in the time period of one month and three months, respectively. SYD is trading closer to its 52-week high. Based on the foregoing, we are of the view that the stock is “Expensive” at the current market price of A$8.100 per share (up 0.124% on 11July 2019).
 

Virgin Australia Holdings Limited

FY19 Earnings Guidance Lower on FY18 Earnings: Virgin Australia Holdings Limited (ASX: VAH) is involved into airlines operations in Australia. The market capitalisation of the company stood at ~A$1.44Bn as on 11 July 2019. The company on 11^th July 2019, advised that Connectivity Pte Limited is exploring an exit from its around 35% minority investment in Velocity Frequent Flyer Holdco Pty Limited. It has requested that various exit options for the sale of its stake to be considered. Recently, the Australian Competition and Consumer Commission (ACCC) had granted interim authorisation for VAH to cooperate with Virgin Atlantic on flights between Australia and the United Kingdom/Ireland, via Los Angeles, Hong Kong and any other future mutual connecting points. In the 1H FY19, the group revenue stood at $ 3.071 Mn, reflecting a growth of 10.0% on pcp.


Financial Summary (Source: Company Reports)

Outlook: Virgin Australia Holdings Limited is expecting underlying earnings for FY19 to be at least $100Mn down on the FY18 comparative result of $64.4Mn, reflecting the uncertainty of revenue trading conditions in the domestic market and inclusive of annual fuel and foreign exchange headwinds in excess of $160Mn. It anticipates revenue growth of 6% for the full year 2019.

Stock Recommendation: The net margin of VAH stood at 2.4% in 1HFY19, reflecting a growth of 2.2% on YoY basis. This implies that Virgin Australia Holdings Limited is improving its capability to convert its topline into the bottom line. With respect to stock’s past performance, it generated returns of -5.56% in the time span of three months. On YTD basis it produced returns of -8.11%. Currently, it is trading at close to a 52-week low price of $0.160. Hence, considering the above-stated facts and FY19 earnings guidance below FY18 earnings, we advise investors to take a wait and watch stance on the stock at the current market price of A$0.165 per share (down 2.941% on 11July 2019).


Comparative Price Chart (Source: Thomson Reuters) 

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