Hi everyone,
Just thought I'd have a closer look at AIZ, try to work out a rough sort of estimate of 2017 earnings. I am a holder and was very happy to receive the monster dividend earlier this year. I think the Company's well run and does a lot right given the difficulties and vagaries of the airline business.
(I'm going to assume all their reporting and announcements are in NZDs)
From their Roadshow Presentation on 13 Oct. 2016:
Underlying NPAT $463,000,000
Cash on Hand $1,600,000,000
Operating Cash Flow $1,100,000,000
Op. Cash Flow per share 96c (AMAZING!)
Return on Invested Capital 22% (pre tax)
Operational Efficiencies $222,000,000
Obviously, these are great numbers by any standard. What stands out for me is the conversion of revenue to cash and also the $222mill in operational efficiencies. That $222mill are savings from simplifying the business, they are recurring, and they make all the difference to the bottom line going forward. We know there are further significant efficiencies coming as the newer carriers are brought into operation.
The savings also speak volumes for Management which has foreseen increased competition and taken the necessary steps to shore up future earnings.
Now, I'm going to use changes in the RPK and yield data to provide us with a proxy (a very rough estimate) of 2017 Profits After Tax. Obviously, I understand this is a very rough guide but I just want to have an idea of how they're tracking in the first quarter.
From Sept Operations Update,
Revenue Passenger Kilometres (passengers carried x kilometres flown) up 6.8% (Aug 6.9%).
Yield for the quarter (Passenger Revenue divided by RPKs) down 8.4%.
[yield is the average fare paid per passenger per mile]
So, If we assume revenue per passenger km stays constant, then Revenue will be up 6.8% thus far this yr. Note that this understates the true impact on profits of additional passengers due to considerable economies of scale.
But, we are now getting 8.4% less per passenger km.
My very rough calculation for NPAT 2017 would be:
2016 Underlying NPAT $463mill X 1.068 X 0.916
This gives approx. $453,000,000
1NZD buys .94AUDs so about $426Mill AUDs
No. of shares from Commsec is 1,122,000,000
EPS in AUDs is 426,000,000/1,122,000,000 = 38c per share
Therefore Price Earnings ratio comes to 4.5 at a Share Price of $1.70
From research on the net I'd say that the Airline industry average PE is somewhere between 6 and 8.
Based on how they're tracking in the first qtr, that would put a fair value of AIZ somewhere between $2.28 and $3.04. You have to weigh up against these numbers the price of Jet Fuel going forward and more competition coming soon. On the plus side, Im sure there are more cost savings to be had and more routes to fly to.
I'm backing this quality Company to keep performing, even as competition intensifies.
Just my opinions.
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