Daily ShareChat: Air New Zealand

By Jenny Ruth

Wednesday 22nd June 2011

Air New Zealand's short-term earnings are under pressure but full-year 2012 earnings should rebound strongly, says Rob Mercer at Forsyth Barr.

"We believe Air New Zealand has been over-sold and offers good value for the known risks," Mercer says.

Mercer is forecasting the airline's normalised net profit for the year ending this month will fall to $49.6 million from $92 million the previous year. However, he expects a $175.6 million normalised net profit for 2012.

"We believe the trans-Tasman strategic alliance between Virgin Blue and Air New Zealand, which kicks off on July 3, 2011, will lead to a strengthening in the combined Australasian services of both airlines," he says.

"This should improve revenue (higher market share) and lower operating costs per ASK (available seat kilometres), providing a boost to earnings over the medium-term."

Mercer says he review three distinct periods since September 2004 when the fuel price increased rapidly and observed Air New Zealand's share price tended to bottom out two months following peak prices.

"In the current cycle, the fuel price last peaked in April 2011 and therefore this suggests Air New Zealand's share price is approaching the bottoming-out phase this month."

Mercer values Air New Zealand shares at $1.55.

Recommendation: Buy.

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