Air New Zealand Limited 

AIZ Details

Chief Corporate Affairs Officer Appointed: Air New Zealand Limited (ASX: AIZ) is the flag carrier airline of New Zealand. It operates over 110 aircraft to more than 40 destinations. As of 26 March 2021, the market capitalisation of the company stood at ~$1.82 billion. AIZ recently announced the appointment of Mr Mat Bolland as the new Chief Corporate Affairs Officer. On 17 March 2021, AIZ released the disclosures from its Directors - Jeff McDowall, Leanne Geraghty, David Morgan, and Cam Wallace regarding their relevant interests in listed financial products.

A Look at the Half-Yearly Results: The company reported operating revenue of NZ$1.2 billion, down by 59% YoY for 1H21 due to the COVID-19 restrictions on air travel and border closures. The passenger revenue declined to NZ$708 million, down by 73% YoY for 1HFY21. It reported a net loss after tax of NZ$72 million for 1HFY21 versus NZ$101 million of net profit for 1HFY19.

AIZ reported its current domestic capacity at 76% of the pre-Covid levels due to strong domestic tourism and the recovery in demand in 1HFY21. Its cargo revenue is up by 91% on pcp driven by the Government support under the International Airfreight Capacity scheme (IAFC). AIZ held a bank balance of NZ$174 million as of 31 December 2020. The Board has announced no interim dividend for 1HFY21 due to the net loss incurred and the terms of the Crown facility (an New Zealand Government standby loan facility).

1HFY21 Financial Highlights (Source: Company Reports)

Key Risks: The company runs the threat of COVID-19 spread due to air travel and people movement. It faces the risk of fall in passenger capacity, increased air travel demand and uplift of restrictions due to the ongoing pandemic.

Outlook: AIZ will continue to maintain cost discipline and is taking measures to recapitalise its balance sheet and plans completion by 30 June 2021. Due to the prevailing air-travel restrictions and relatively low air travel demand, AIZ has not provided earnings guidance for FY21. Despite its improved domestic and cargo performance, AIZ anticipates a significant loss in FY21, given the current scenario.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

** 1 NZD = ~0.92 AUD

Stock Recommendation: The stock of AIZ gave a negative return of 3.59% in the past three months and a positive return of 33.05% in the past six months. The stock currently trades towards higher than the 52-weeks’ average price level of $0.805-$1.88. The stock of AIZ has a support level of ~$1.495 and a resistance level of ~$1.747. We have valued the stock using the Enterprise Value to EBITDA based illustrative relative valuation method and have arrived at a target price of high single-digit downside (in % terms). For this purpose, we have taken peers like Alliance Aviation Services Limited (ASX: AQZ), Qantas Airways Limited (ASX: QAN), Flight Centre Travel Group Limited (ASX: FLT), to name a few. We believe that the company can trade at a slight discount compared to its peer average, considering its lower operating revenue, net loss after tax for 1HFY21, lower receipts from customers, and the associated pandemic risks, restrictions; hence, the lower air travel demand. Considering the current trading levels, the persisting air travel restrictions, lower passenger revenue and traffic in 1HFY21, significant loss predicted for FY21 and valuation, we give an ‘Avoid’ rating on the stock at the current market price of $1.610, down by 0.924% on 26 March 2021.

AIZ Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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