Auckland Airport fortunes turn on Sydney sale

By NZPA

Friday 28th June 2002

Widely divergent opinions as to Auckland Airport's future have been reflected in its topsy-turvy share price this week.

News on Tuesday that a Macquarie Bank Ltd-led syndicate yesterday had bought Sydney Airport saw the Auckland facility's share price lose 7c to $4.34.

Many investors viewed Macquarie as being a hot contender for Auckland City Council's 25.7 percent stake in Auckland Airport, and the Sydney sale was expected to have exhausted its bank balance.

But in the following two days, the stock climbed 21c as other investors considered that the price paid for Sydney -- $A5.6 billion ($NZ6.6 billion) -- had set a benchmark for Auckland.

"The Sydney airport process and price paid clearly shows the value that investors, particularly trade investors, will place on these assets," said ABN Amro's head of research James Miller.

"Auckland is every bit as good a franchise as Sydney, if not better," he added. "It's got more growth options, less capex (capital expenditure), more potential in Auckland and better monopoly franchise. Auckland gets 70 percent of our international (traffic), Sydney gets between 50 and 60 percent of Australia's passengers."

Mr Miller bases his comments on the amount paid for Sydney -- 25 times the earnings before interest, tax, depreciation and amortisation (ebitda), whereas the normal amount is seven times ebitda.

But another research analyst felt the airport's share price was actually slightly overheated.

Macquarie Bank's purchase elsewhere made the prospect of a takeover of Auckland "very slim" and it had been the "obvious player" for the council shares.

The analyst noted that institutions were generally keen to talk down companies at the moment because of a shortage of stock.

"One, they're more than happy to repeat any story that would suggest the share price is overheated and two, they'll be looking for excuses to believe the share price is overheated."

But in the case of the airport, he felt this was justified. "There could be other players but remember, Changi sold 7 percent of this company six months ago and couldn't find a buyer."

However, Mr Miller advised investors not to count Macquarie Bank out when it came to Auckland Airport.

"Assets of this quality always attract appropriate buyers," he noted, and said it would be "grossly underestimating" Macquarie to think it could not raise the cash. It had launched a specific airport fund.

The other broker felt Macquarie was out of the race, simply because the trust it had used to buy Sydney was trading below its issue price.

Auckland City Council has not indicated when it will put its shares on the market but the unnamed broker said it was likely the institution handling the sale was waiting until Sydney was out of the way.

"It really is a stock at the moment where the outcomes are quite obvious, but they lead to quite different conclusions in terms of where the share price should go," he said.

"If there's a takeover, the stock's probably worth $5 ... If there's a placement the stock's probably worth closer to $4 ... below the share price today."

Auckland airport has been steadily on the ascent since April 2000 when it was worth $2.20. Despite a dip after September 11, the stock has been on the straight and narrow to a peak of $4.85 in May.

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