Why Air New Zealand Is Still A BUY [ASX:AIZ]

By | January 30, 2017

Why Air New Zealand Is Still A Buy In My Book

I have held Air New Zealand (AIZ) for the longest time while investing, well not that long for many, but it was my first investment, see here.

I originally purchased AIZ back in October 2016 at a bargain price of $1.67 each, now they have increased to a price of $2.08 at time of writing, they now sit at a price of AIZ 2,12 -0,01 -0,47%. Even though the price has increased quite significantly for me, I still believe the sales and customer service of this company are one of the best in the entire world. At a simple price of $2.08 now it is still a bargain purchase.

I believe their sales will increase for the time being, as I will discuss below. I’m not the only one that thinks they will increase over time and are fundamentally undervalued. Morning Star reports on companies and has stated that they believe AIZ are an undervalued stock.

 

Long Term Growth

Air New Zealand will invest in a new fleet of vehicles in the coming years which will increase their overall debt but will also increase their available passengers which in turn will increase total revenue. Air New Zealand has also recently sold their stake in Virgin Air in NZ which was a great move as it turns out as they shortly after were doing poorly.

In the 2015/16 financial year, AIZ had their best year on record, this was partly due to their selling off of Virgin. This also led to a special dividend which was well received. I think many people took this special dividend and held the stock until the specific date and then sold after, which led to me being able to purchase at such a low price.

I have done my own calculations from the monthly reports that AIZ send out and have calculated an estimated end of year performance compared to last years performance. Remember, that last financial year, AIZ posted a profit of $663 NZD million (480 USD) in total, which is absolutely huge for such a cheap share.

Air NZ 16/17

Figure 1: Estimated Revenue Air New Zealand 2016/17

I have calculated the following passengers carriers, revenue passenger kilometer, available seat kilometers and passenger load factor. I have given the second half of the year a 95% loading as I believe there will be a lower sales in the second half of the year due to holiday sales and general slowing of economy is possible.

If  you take a look at the figure, you can see that there is a possibility of a higher passengers carried, revenue passengers and seat available. There is a possibility of an extra 4% of revenue over this time period. Now isn’t that worth a look at this stock that is still paying a high dividend even when it pays out roughly 60% of profits.

If this is truly an increase on last years revenue, although oil price has been slightly higher than it has previously, I believe this should be quite similar to last years profit of $663 million NZD. I still think anything over the $550 million NZD should attract great long-term investors.

If oil price can stay low enough then this share is surely a great purchase for anyone looking for a high yielding stock. Let me know what you think of this stock in the comments below.

4 thoughts on “Why Air New Zealand Is Still A BUY [ASX:AIZ]

  1. Erik @ The Mastermind WIthin

    Do you look at metrics like EPS, P/E, or anything else like that? The increase in revenues should draw more attention and you make a good point on oil prices.

    Most airlines will buy oil futures to smooth out short-term price swings. Do you know if Air New Zealand does this hedging?

    Reply
    1. Buy - Hold - Long Post author

      Hi Erik, I didn’t mention the metrics but I definitely do look at EPS, P/E etc. I was able to get this under 5PE which is cheap, but as we know airline stocks always do go cheap because of their volatility. AirNZ do have a hedged oil price scheme in place to counteract the rising oil prices. All is publicly available on their website. Cheers

      Reply
  2. Dividends Down Under

    Nice buy BHL, AIZ is definitely my favourite too, of the airlines. Even Berkshire is buying airlines. Nothing wrong with a bit of diversification with that. 🙂

    Tristan

    Reply

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