Air New Zealand
Valuecruncher has valued each Air New Zealand share at $1.92, with a range of $1.35 to $2.57. The share price closed at $2.25 on the 1 March 2007.
Air New Zealand’s recently released interim result for the 6 months to December 31 highlighted the ongoing improvement in profit margins and continued expansion into new locations including a planned direct service to Vancouver. The interim result announcement was accompanied by news of an interim dividend of 3 cents per share up from 2.5 cents last year and a special dividend of 10 cents per share.
Over the last 3 months the Air New Zealand share price has increased steadily to the point where it has an enterprise value – EBIT multiple of 16.1. This multple is consistent with Qantas (16.7) which is in the process of being acquired. Valuecruncher’s valuation implies an enterprise value – EBIT multiple of 13.1 which is consistent with leading US operator Southwest Airlines (13.7). Given the large stake in Air New Zealand held by the Government Valuecruncher does not consider the airline a takeover target in the short to medium term.
Revenue Growth
Revenue is forecast to grow at 8% per annum for the next 3 years as Air New Zealand continues to explore opportunities to expand into new markets.
EBIT Margins
Valuecruncher has increased the forecast EBIT margin to 5% reflecting recent improvements in performance but acknowledge the value impact of any increase in core cost components such as fuel. If Air New Zealand can’t maintain the efficiency improvements made or external costs increased resulting in a drop in the EBIT margin to 4% the valuation would drop to $1.51.
The WACC used for this analysis is 11.5%.
Terminal Growth
Terminal growth has been set at 3%.