The ACC is to
decide tomorrow on the Sale process and in the meantime allow me to
suggest that AIA is a compelling buy.
The Airport is the most profitable in the world. It is because of:
1. Tight and superb management-That is no secret.
2. The books are
transparent and there is no goodwill.
3. Good consistent earnings
pattern with latest earnings up 21%.
4. Strongly increasing numbers of
visitors and other arrivals
5. The adoption of the Dual Till method.
This views aeronautical services as separate and self -funding (no cross
subsidies)
6. High income from non-aeronautical sources coupled with
very low costs:
Data from the latest Annual Report:
Data ($m.) and Percentage of
revenue (%):
Retail (57.8) 28.8
Property rentals: (21.6) 10.7
Car parks
(12.7 6.3
Utilities (8.1) 4.0
Totals ($100.2 mill) 49.8% That
total is half of the revenue.
New contracts have been signed to increase revenue from Retail by $15
mill. That would bring the Retail to about 34% of total revenue and the
"Totals" well above 50%.
Capital expenditure on Investment property was $12.5 mill. and the
market value of the 32 sites was $98.8 mill. during the year; rental
revenue from these properties and office space in the terminals increased
by 20.7%. There is a premium on property values on Airport land. AIA has a
large landbank.
Given time it is always possible that property will be sold and
shareholders may benefit.
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Statistics: Prospective E/S: 25 cents. Current price: $5.15 with a P/E
of 20.6. Winner69 has intimated that in the July months the P/E tends to
be 25. This corresponds with a share price of $6.25 in July 2003 and
compares favourably with $6.52 and $6.58 given by ABN-AMRO and another
broker. I agree with these findings.
Prospective dividend yield (Share price $5.15, 20 cents dividend: 5.9%
after imputation. Based on $6.25 this will be an acceptable yield of 4.8%.
Obviously, adverse conditions would affect the P/E and dividend yield.
Current low pricing is due to the sale process not having been
completed. I am aiming at a target of $5.88 after the effects of this
process have gone. There needs to be sufficient lapsed time between this
and July to achieve these numbers. These numbers are not guaranteed.
There could be 15% to 20% rise in share price from the start of the
actual sale process to July 2003.
Summary: Because of its success, there is no real incentive for a
single buyer to take over AIA. This is because any improvements can only
be marginal while any takeover price is prohibitive. One of the few key
assets likely to remain in the hands of NZ for some time to come!
That is my opinion.
Gerry
Disclaimer: Outcomes may be different than projected. Readers
will buy, hold or sell AIA at their own risk.
Source of Data: see this
AIA thread.
See IRG research reports
