Forum Archive Index - June 2001

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

>
> Snoopy,
> I thought there were not 570 million shares on issue but 386 million
> A shares plus 371 million B shares making a total of 757 million
> shares.  Am I mistaken?
> 
Well spotted Adrian and Vanessa.  I carefully researched the number 
of AIR shares in the year 2000 Annual Report, completely forgetting 
about the extras as a result of the subsequent cash issue!   D'oh!

So, a quick re-jig of the figures.   

"Based on current AIRVA and AIRVB share prices of
$1.05/$1.45, this would mean a theoretical share price
after such an issue of (5x40c + 1.05)/6 and (5x40c +
1.45)/6 which come out to  51c /58c for each A and B
shares respectively.  If we regard 1999s consolidated
surplus of $214million as achievable again (synergies
with Ansett *eventually* balance the higher fuel costs
and greater competition in Australia) perhaps a P/E
ratio of 8 for this theoretical AirNZ of the future
might be appropriate."

That still holds as I see it.  I've bumped up the expected long term 
profit forecast too, from $214m to $230m, as the rights issue doesn't 
become viable for A shareholders if you don't.

There are currently some 757million Air NZ shares on
issue, which would rise to 4,542million under this
hypothetical proposed restructuring. So a $230m profit
means earnings of 5.06c per share which equates to share
price of 40.5c for the A shares and maybe 50c for the B
shares. (the B shares have traditionally been valued at
20% or so more than the A shares).

For the A shareholders this means an expected profit of
around 0.5c each on each of their rights, which added to
the 'intrinsic future value' of the share they had
already (this becomes worth 40.5c after the hypothetical
restructuring) gives a fair value of the current AirNZ
shares of 40.5c + 5x0.5c = 43c.  So the market is
currently (severely) overvaluing the AIRVA shares

A similar exercise on the 'B' shares, produces an
estimate of current value of 50c + 5x10c = $1.00.  Which
means that the market is still overvaluing the AIRVB
shares (by 40%) too!  Such a scenario would be a joke if we hadn't 
witnessesd a similar scenario played out by Fletcher Forests just 
last year. Perhaps the example just indicates that at 40c, the 
'deeply discounted rights issue' is not deeply discounted enough.

Have I been too pessimistic with my assumptions?   I hope so!  Or 
maybe the sale of Ansett Australia (which would neatly wipe out the 
requirement for a cash issue) is indeed the more attractive option 
for small shareholders? SNOOPY








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