Air New Zealand shares slip after brokers, instos pile into 'strongly priced' selldown

Wednesday 20th November 2013

Air New Zealand shares fell when they resumed trading, after many brokers and institutional investors piled into the government's sale of a 20 percent stake at what some market participants say was a surprisingly strong price.

The book was about twice covered at the sale price of $1.65 a share and the broker, New Zealand and overseas institutional pools were all scaled back, people familiar with the process said. Overseas institutions were scaled the most as the government insisted on a threshold for kiwi ownership, which now stands at about 88 percent including the Crown's remaining 53 percent holding.

Brokers picked up 41 percent of the stock on offer for retail investors, local institutions got 43 percent and offshore funds picked up just 16 percent. Brokers then had to on-sell the shares they'd hoovered up to clients.

The shares fell 3.3 percent to $1.595 today, just below the level the government sale was first pitched at on Monday before demand drove up the final price. Market participants said the government did well to get that price, which was close to a five-year high - the top end of its range since the global financial crisis.

"The market was genuinely surprised by the price," said James Lee, head of institutional equities at First NZ Capital. "Eventually fundamentals will win over flow."

Analysts on average have a $1.91 target price for Air New Zealand, which more than doubled its profit last year, beating market estimates, as it grew passenger revenue and kept costs under control. Craigs Investment Partners, which helped manage the sale, is forecasting earnings growth of 19 percent in the current year.

Mark Lister, head of private wealth research at Craigs Investment Partners, said he still has "a pretty optimistic view" of the company, which offers a gross dividend yield of 8.5 percent at current prices and trades at a price/earnings ratio of "barely over 8 percent" while the benchmark index as a whole trades at 16 times.

"An airline is always going to trade at a discount to the market because it is more cyclical and high risk," he said.

The government has no plans to further reduce its stake in the airline, so any perceptions of an overhang of stock have effectively been removed.

Demand is likely to be boosted toward January, when index weightings on the NZX are next reviewed. Air New Zealand's weighting will increase to between 1.4 percent and 1.5 percent from 0.8 percent currently, he said.

BusinessDesk.co.nz

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