New Zealand Professional Investment Services Firm

Forsyth Barr

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New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>Auckland Airport &nbsp;&nbsp; FY20 Result Initial Thoughts</h2>
Auckland Airport (AIA) reported FY20 EBITDA slightly lower than our forecast as cost reductions measures were less impactful through 2H20 than anticipated. The result is messy given a large number of one-off significant items (a function of COVID-19 impairments, abatements, write-offs, and termination costs), which makes comparison difficult between our estimates, consensus and company reported. At an NPAT level AIA appears to benefit from significantly lower tax than anticipated. The company won’t be paying a dividend until final FY22 at the earliest in light of its agreement with lenders.
Key FY20 highlights:
<ul>
<li>Revenue of NZ$567.0m was broadly in-line with expectations, but the mix was weighted to property rentals and car parking, while retail was modestly lower than our estimates.</li>
<li>Company reported EBITDAFI of NZ$260.4m, increases to NZ$388.0m once adjusted for NZ$127.6m of COVID-19 related expenses. This compares to our estimate of NZ$398.4m.</li>
<li>Opex before COVID-19 related expenses fell in 2H20, -12% against the prior year. The reduction in costs was slower than expected, as we were anticipating a greater variable component to the cost base as passenger numbers declined sharply. However, AIA is on target to deliver a -35% reduction in opex ”prior to restarting profitable domestic orientated commercial activities. “</li>
<li>Pre-tax significant or one-off items were largely in-line. After adjusting for the NZ$127.6m of COVID-19 costs we determine that total significant items were –NZ$14.5m (Forsyth Barr –NZ$11.4m).</li>
<li>Tax was substantially lower than anticipated, which helps to boost reported NPAT.&nbsp; &nbsp;</li>
</ul>
Outlook
AIA has suspended underlying earnings guidance for FY21. No surprise here given the uncertainty that persists around the outlook for air travel.
It comments that “the recovery could take longer than IATA’s and S&amp;P’s current forecasts of a full recovery of international travel in approximately three years.” Moreover, it is “hopeful” that domestic travel will return to normal comfortably within two years. This may be compromised by the material proportion of domestic travellers that are connecting from/onto international flights. We currently assume that AIA’s international passengers recover to FY19 levels in FY25 and domestic by FY24.
New capex guidance for FY21 is NZ$250m-NZ$300m, which implies a higher than outlined at the time of the equity raise in early April (~NZ$275m between April 2020 and December 2021).
Conference call
AIA will host a post-result investor conference call at 10am NZST. Investors need to pre-register&nbsp;for the call&nbsp; at:&nbsp;<a href="http://apac.directeventreg.com/registration/event/4898249" target="_blank" data-saferedirecturl="https://www.google.com/url?q=http://apac.directeventreg.com/registration/event/4898249&amp;source=gmail&amp;ust=1597963113184000&amp;usg=AFQjCNGB4AivMSxSR8MxeR76_DX0Ysfwfw" rel="noopener">http://apac.directeventreg.com/registration/event/4898249</a>
Result summary (NZ$m)
<table class="table table-striped">
<tbody>
<tr>
<td style="width: 170.4pt;"></td>
<td style="width: 52.8pt;">
FY19
</td>
<td style="width: 51.8pt;">
FY20
</td>
<td style="width: 52.8pt;">
Change
</td>
</tr>
<tr>
<td style="width: 170.4pt;">
Profit and loss account
</td>
<td style="width: 52.8pt;"></td>
<td style="width: 51.8pt;"></td>
<td style="width: 52.8pt;"></td>
</tr>
<tr>
<td style="width: 170.4pt;">
Sales revenue
</td>
<td style="width: 52.8pt;">
743.4
</td>
<td style="width: 51.8pt;">
567.0
</td>
<td style="width: 52.8pt;">
-24%
</td>
</tr>
<tr>
<td style="width: 170.4pt;">
Airfield income
</td>
<td style="width: 52.8pt;">
127.6
</td>
<td style="width: 51.8pt;">
100.6
</td>
<td style="width: 52.8pt;">
-21%
</td>
</tr>
<tr>
<td style="width: 170.4pt;">
Passenger Service Charge
</td>
<td style="width: 52.8pt;">
185.1
</td>
<td style="width: 51.8pt;">
133.0
</td>
<td style="width: 52.8pt;">
-28%
</td>
</tr>
<tr>
<td style="width: 170.4pt;">
Retail income
</td>
<td style="width: 52.8pt;">
225.8
</td>
<td style="width: 51.8pt;">
141.5
</td>
<td style="width: 52.8pt;">
-37%
</td>
</tr>
<tr>
<td style="width: 170.4pt;">
Property income
</td>
<td style="width: 52.8pt;">
86.6
</td>
<td style="width: 51.8pt;">
88.5
</td>
<td style="width: 52.8pt;">
2%
</td>
</tr>
<tr>
<td style="width: 170.4pt;">
Car Park income
</td>
<td style="width: 52.8pt;">
64.2
</td>
<td style="width: 51.8pt;">
50.3
</td>
<td style="width: 52.8pt;">
-22%
</td>
</tr>
<tr>
<td style="width: 170.4pt;">
Other rental income
</td>
<td style="width: 52.8pt;">
21.2
</td>
<td style="width: 51.8pt;">
20.7
</td>
<td style="width: 52.8pt;">
-2%
</td>
</tr>
<tr>
<td style="width: 170.4pt;">
Other income
</td>
<td style="width: 52.8pt;">
32.9
</td>
<td style="width: 51.8pt;">
32.4
</td>
<td style="width: 52.8pt;">
-2%
</td>
</tr>
<tr>
<td style="width: 170.4pt;">
EBITDAFI (Forsyth Barr approach)
</td>
<td style="width: 52.8pt;">
554.8
</td>
<td style="width: 51.8pt;">
388.0
</td>
<td style="width: 52.8pt;">
-30%
</td>
</tr>
<tr>
<td style="width: 170.4pt;">
Depreciation
</td>
<td style="width: 52.8pt;">
(102.2)
</td>
<td style="width: 51.8pt;">
(112.7)
</td>
<td style="width: 52.8pt;">
10%
</td>
</tr>
<tr>
<td style="width: 170.4pt;">
Associate income
</td>
<td style="width: 52.8pt;">
8.2
</td>
<td style="width: 51.8pt;">
8.4
</td>
<td style="width: 52.8pt;">
2%
</td>
</tr>
<tr>
<td style="width: 170.4pt;">
One-time items
</td>
<td style="width: 52.8pt;">
249.6
</td>
<td style="width: 51.8pt;">
(14.5)
</td>
<td style="width: 52.8pt;">
-106%
</td>
</tr>
<tr>
<td style="width: 170.4pt;">
Interest expense
</td>
<td style="width: 52.8pt;">
(78.5)
</td>
<td style="width: 51.8pt;">
(71.8)
</td>
<td style="width: 52.8pt;">
-9%
</td>
</tr>
<tr>
<td style="width: 170.4pt;">
Taxation
</td>
<td style="width: 52.8pt;">
(108.4)
</td>
<td style="width: 51.8pt;">
(3.5)
</td>
<td style="width: 52.8pt;">
-97%
</td>
</tr>
<tr>
<td style="width: 170.4pt;">
Reported NPAT
</td>
<td style="width: 52.8pt;">
523.5
</td>
<td style="width: 51.8pt;">
193.9
</td>
<td style="width: 52.8pt;">
-63%
</td>
</tr>
<tr>
<td style="width: 170.4pt;">
Abnormals (post tax)
</td>
<td style="width: 52.8pt;">
(248.8)
</td>
<td style="width: 51.8pt;">
(5.4)
</td>
<td style="width: 52.8pt;">
-98%
</td>
</tr>
<tr>
<td style="width: 170.4pt;">
Underlying NPAT
</td>
<td style="width: 52.8pt;">
274.7
</td>
<td style="width: 51.8pt;">
188.5
</td>
<td style="width: 52.8pt;">
-31%
</td>
</tr>
<tr>
<td style="width: 170.4pt;">
Underlying EPS (cents)
</td>
<td style="width: 52.8pt;">
22.8
</td>
<td style="width: 51.8pt;">
14.7
</td>
<td style="width: 52.8pt;">
-35%
</td>
</tr>
<tr>
<td style="width: 170.4pt;">
Final DPS (cents)
</td>
<td style="width: 52.8pt;">
11.25
</td>
<td style="width: 51.8pt;">
0.00
</td>
<td style="width: 52.8pt;">
-100%
</td>
</tr>
</tbody>
</table>
&nbsp;Source: AIA, Forsyth Barr analysis
Andy Bowley&nbsp; Head of Research
<figure class="editor-figure mceNonEditable"><img src="https://mail.google.com/mail/u/0?ui=2&amp;ik=f57c39853c&amp;attid=0.1&amp;permmsgid=msg-f:1675491801238604493&amp;th=17408aea84e80acd&amp;view=fimg&amp;sz=s0-l75-ft&amp;attbid=ANGjdJ84f68fhKg45d-EI8qJncRDuEEsMkdScVhDiuvjpkfjtyaA0bTdteV77BXY8mdceF9oHRsQWNh3cbTaS_eGrxQwsJdHuD5ifVQuU4PNjhJQVcghel-Y7iI1CiQ&amp;disp=emb" class="editor-image img-responsive"></figure>
M: +64 21 338 941 |P: +64 4 495 8246 | TF: 0800 367 227&nbsp; Level 22, NTT Tower, 157 Lambton Quay, Wellington

Auckland Airport &nbsp;&nbsp; FY20 Result Initial Thoughts
Auckland Airport (AIA) reported FY20 EBITDA slightly lower than our forecast as cost reductions measures were less impactful through 2H20 than anticipated. The result is messy given a large number of one-off significant items (a function of COVID-19 impairments, abatements, write-offs, and termination costs), which makes comparison difficult between our estimates, consensus and company reported. At an NPAT level AIA appears to benefit from significantly lower tax than anticipated. The company won’t be paying a dividend until final FY22 at the earliest in light of its agreement with lenders.
Key FY20 highlights:

Revenue of NZ$567.0m was broadly in-line with expectations, but the mix was weighted to property rentals and car parking, while retail was modestly lower than our estimates.
Company reported EBITDAFI of NZ$260.4m, increases to NZ$388.0m once adjusted for NZ$127.6m of COVID-19 related expenses. This compares to our estimate of NZ$398.4m.
Opex before COVID-19 related expenses fell in 2H20, -12% against the prior year. The reduction in costs was slower than expected, as we were anticipating a greater variable component to the cost base as passenger numbers declined sharply. However, AIA is on target to deliver a -35% reduction in opex ”prior to restarting profitable domestic orientated commercial activities. “
Pre-tax significant or one-off items were largely in-line. After adjusting for the NZ$127.6m of COVID-19 costs we determine that total significant items were –NZ$14.5m (Forsyth Barr –NZ$11.4m).
Tax was substantially lower than anticipated, which helps to boost reported NPAT.&nbsp; &nbsp;

Outlook
AIA has suspended underlying earnings guidance for FY21. No surprise here given the uncertainty that persists around the outlook for air travel.
It comments that “the recovery could take longer than IATA’s and S&amp;P’s current forecasts of a full recovery of international travel in approximately three years.” Moreover, it is “hopeful” that domestic travel will return to normal comfortably within two years. This may be compromised by the material proportion of domestic travellers that are connecting from/onto international flights. We currently assume that AIA’s international passengers recover to FY19 levels in FY25 and domestic by FY24.
New capex guidance for FY21 is NZ$250m-NZ$300m, which implies a higher than outlined at the time of the equity raise in early April (~NZ$275m between April 2020 and December 2021).
Conference call
AIA will host a post-result investor conference call at 10am NZST. Investors need to pre-register&nbsp;for the call&nbsp; at:&nbsp;http://apac.directeventreg.com/registration/event/4898249
Result summary (NZ$m)





FY19


FY20


Change




Profit and loss account







Sales revenue


743.4


567.0


-24%




Airfield income


127.6


100.6


-21%




Passenger Service Charge


185.1


133.0


-28%




Retail income


225.8


141.5


-37%




Property income


86.6


88.5


2%




Car Park income


64.2


50.3


-22%




Other rental income


21.2


20.7


-2%




Other income


32.9


32.4


-2%




EBITDAFI (Forsyth Barr approach)


554.8


388.0


-30%




Depreciation


(102.2)


(112.7)


10%




Associate income


8.2


8.4


2%




One-time items


249.6


(14.5)


-106%




Interest expense


(78.5)


(71.8)


-9%




Taxation


(108.4)


(3.5)


-97%




Reported NPAT


523.5


193.9


-63%




Abnormals (post tax)


(248.8)


(5.4)


-98%




Underlying NPAT


274.7


188.5


-31%




Underlying EPS (cents)


22.8


14.7


-35%




Final DPS (cents)


11.25


0.00


-100%




&nbsp;Source: AIA, Forsyth Barr analysis
Andy Bowley&nbsp; Head of Research

M: +64 21 338 941 |P: +64 4 495 8246 | TF: 0800 367 227&nbsp; Level 22, NTT Tower, 157 Lambton Quay, Wellington

Auckland Airport: FY20 Result Initial Thoughts

Auckland Intl Airport

Auckland Airport: FY20 Result Initial Thoughts