Forum Archive Index - March 2000

[frank fernandez <frank.fernandez@xtra.co.nz>]

Hi all,

Just thought I'd share with everyone the research I have done on a
couple of stocks that I believe will attract investor attention over the
next couple of days. (I'll write about the first one here and the second
one in another posting)

The first stock is Auckland International Airport (AIA) which is
announcing its half-year results tomorrow - an expected $23 million
profit for the period, excellent by any standards. But a greater focus
for investors will be the special meeting of the Auckland City Council
tomorrow to discuss the selling of its 25.75% stakeholding in AIA. Most
of the city councils in the greater Auckland area have already cashed up
their stakeholdings at a much higher price than the current price of the
stock. 

Councillor Gray Barlett (a firm advocate for selling) has been quoted
publicly as saying that he's got the numbers to support selling
"although it will be close". The Council's pro-sell faction wants to use
the money for infrastructure funding and while City Vision (with eight
of the 20 votes on the council) have indicated they would oppose the
sale, it is expected that the "ayes" would carry the day and approve the
sale.

The most probable buyer of the Council's stakeholding (worth around $270
million at the last sell price) would be Singapore's Changi Airport,
world leaders in airport management.  Changi, not so long ago, paid $87
million for the North Shore City Council's 7.14 per cent holding in AIA
- a move seen at that time by market analysts as Changi's clear
intention of being the major shareholder in AIA. This assumption proved
right when Changi enlisted the services of a brokerage firm soon after
to bid for Auckland City Council's 25.75 per cent stake. 

There are many compelling reasons why the Auckland City Council would
vote to sell its shares. These are:

1. The AIA shareholder registry is wide open and Changi, with around $3
billion spare cash on its balance sheet, could still take a controlling
stake in AIA even if the Council decided not to sell.
 
2. Such a move by Changi would then negate the 'strategic' value of the
Auckland City Council's AIA holding - and hence why councillors such as
Gray Bartlett have been advocating a sell approach.
 
3. The bid by Changi has the support of Auckland International Airport's
management whose MD John Goulter has said that it was a 'feather' in
AIA's cap that Changi, one of the world's best run airports, had chosen
Auckland as its first overseas investment.

4. When the Council consulted residents last May, more than 95%
advocated selling. 

5. The decision by other Councils such as North Shore City and Waitakere
City to sell their stakeholdings has been putting a lot of pressure on
the Auckland City Council to do likewise.

6. The Council at present only receives modest cash dividends from its
stakeholding and unless it sells, cannot derive any capital gain.

7. The Council's stakeholding is exposed to financial risk, i.e.
sharemarket fluctuations which could diminish the future value of its
stakeholding.

8. The minority shareholding means the Council is not able to influence
AIA decisions on future strategy.

9. Proceeds of the sale can be used for infrastructure, public
transport, repayment of debt, reduction of rates or otherwise as Council
sees fit. 

10. $120 million of council debt can be paid off.

11. A 'nest egg' of  around $153 million (depending on final sale price)
will be available for infrastructure spending.

For the reasons listed above, I believe the Council will vote to sell
tomorrow.  Many broking analysts have predicted that a sell decision
will have an extremely positive impact on the AIA share price. The
analysts have blamed the Council's past stubborn doggedness (in not
selling) as the main factor in the AIA share price decline in recent
months. The stock closed at $2.50 today but its movement over the next
day or so will be extremely interesting as some brokers have put its
true value at $3.50.

As usual, I trust the above information will be useful in your
investment deliberations over the next couple of days.

Cheers,

Frank Fernandez

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