New Zealand Professional Investment Services Firm

Forsyth Barr

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>Transport and Tourism Sectors<br>Recovery Profile up in the Air</h2>
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<p>New Zealand’s pathway to fully reopen its borders remains long duration and uncertain. The government has decided against providing vaccination hurdles or detailed border reopening sequencing at this stage and suggests a relaxation of border controls will be "gradual and deliberate". Current border settings are unlikely to change materially over the next six months, in our opinion. However, the government has outlined that a new risk based approach to the border will be implemented from 1Q22, once the vaccination programme has been completed, probably in 2022, but there is no certainty on timing. Its implementation will be subject to new border testing and vaccine checking systems. The backdrop for aviation exposed transport and tourism companies remains uncertain with earnings downside risk a key feature as a result of a prolonged closure&nbsp;of the trans-Tasman bubble, and slow border reopening.&nbsp;We rate Auckland Airport (AIA) and Air New Zealand (AIR) as UNDERPERFORM and Tourism Holdings (THL) as NEUTRAL.&nbsp;</p>
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<h3>Risk based approach&nbsp;​​​​​​​</h3>
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<p>For vaccinated travellers from low-risk countries no isolation will be required. For vaccinated travellers from medium-risk countries, some isolation will be required, but this could be a shorter stay in managed isolation and quarantine (MIQ) or home isolation. Unvaccinated travellers and those travellers from high risk countries would still have to do 14 days in MIQ. Testing requirements would apply to all groups. ​​​​​​​The government has yet to outline what would constitute low, medium and high risk countries. It would be safe to assume that low risk countries would be those where existing bubbles exist or where infection rates are very low and vaccination rates high. High risk countries would constitute the inverse.</p>
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<h3>Pilot programme to test medium risk settings</h3>
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<p>Similar to what Australia has announced, New Zealand will run a pilot between October and December 2021 to trial the medium risk setting. Businesses that need to send staff overseas may apply to participate in the trial.&nbsp;It would only involve New Zealanders who were vaccinated in New Zealand and had travelled for a short period of time to an approved list of medium risk countries. They would have to provide self-quarantine plans on return to New Zealand.</p>
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<h3>Vaccinations are critical&nbsp;​​​​​​​</h3>
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<p>​​​​​​​The&nbsp;Strategic COVID-19 Public Health Advisory Group’s advice has helped shape the government’s reopening strategy. While the government says that “Once enough people are vaccinated, we will be able to start the next step in the plan”, the group's Chair Sir David&nbsp;Skegg&nbsp;has suggested he supported the scheme, so long as it was implemented once everyone eligible for a vaccine had the opportunity to have one. We suspect these equate to the same outcome on timing of border reopening. Thus far ~30%&nbsp;of New Zealanders have received at least one dose, while ~18% have received two doses. New Zealand now ranks last on the OECD league table for vaccination progress on&nbsp; first doses, and&nbsp; third last on full vaccinations. &nbsp;</p>
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<h3>Implications for companies</h3>
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<li>Auckland Airport&nbsp;(AIA): At heightened risk of failing next debt covenant test as at 30 June 2022. Risk to market implied recovery profile is to the downside and FY22 final dividend increasingly unlikely. FY21 result due on 19 August 2021.&nbsp;</li>
<li>Air New Zealand&nbsp;(AIR): Significant losses remain a feature in FY22 as outlined in recent earnings guidance update. Significant capital raise due in next seven weeks. FY21 result due on 26 August 2021.&nbsp;</li>
<li>Tourism Holdings&nbsp;(THL): The combination of the trans-Tasman bubble 'pause' and inter-state border closures in Australia will weigh on anticipated losses in FY22.&nbsp;&nbsp;FY21 result due on 26 August 2021.&nbsp;</li>
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Transport and Tourism Sectors Recovery Profile up in the Air


New Zealand’s pathway to fully reopen its borders remains long duration and uncertain. The government has decided against providing vaccination hurdles or detailed border reopening sequencing at this stage and suggests a relaxation of border controls will be "gradual and deliberate". Current border settings are unlikely to change materially over the next six months, in our opinion. However, the government has outlined that a new risk based approach to the border will be implemented from 1Q22, once the vaccination programme has been completed, probably in 2022, but there is no certainty on timing. Its implementation will be subject to new border testing and vaccine checking systems. The backdrop for aviation exposed transport and tourism companies remains uncertain with earnings downside risk a key feature as a result of a prolonged closure&nbsp;of the trans-Tasman bubble, and slow border reopening.&nbsp;We rate Auckland Airport (AIA) and Air New Zealand (AIR) as UNDERPERFORM and Tourism Holdings (THL) as NEUTRAL.&nbsp;


Risk based approach&nbsp;​​​​​​​


For vaccinated travellers from low-risk countries no isolation will be required. For vaccinated travellers from medium-risk countries, some isolation will be required, but this could be a shorter stay in managed isolation and quarantine (MIQ) or home isolation. Unvaccinated travellers and those travellers from high risk countries would still have to do 14 days in MIQ. Testing requirements would apply to all groups. ​​​​​​​The government has yet to outline what would constitute low, medium and high risk countries. It would be safe to assume that low risk countries would be those where existing bubbles exist or where infection rates are very low and vaccination rates high. High risk countries would constitute the inverse.


Pilot programme to test medium risk settings


Similar to what Australia has announced, New Zealand will run a pilot between October and December 2021 to trial the medium risk setting. Businesses that need to send staff overseas may apply to participate in the trial.&nbsp;It would only involve New Zealanders who were vaccinated in New Zealand and had travelled for a short period of time to an approved list of medium risk countries. They would have to provide self-quarantine plans on return to New Zealand.


Vaccinations are critical&nbsp;​​​​​​​


​​​​​​​The&nbsp;Strategic COVID-19 Public Health Advisory Group’s advice has helped shape the government’s reopening strategy. While the government says that “Once enough people are vaccinated, we will be able to start the next step in the plan”, the group's Chair Sir David&nbsp;Skegg&nbsp;has suggested he supported the scheme, so long as it was implemented once everyone eligible for a vaccine had the opportunity to have one. We suspect these equate to the same outcome on timing of border reopening. Thus far ~30%&nbsp;of New Zealanders have received at least one dose, while ~18% have received two doses. New Zealand now ranks last on the OECD league table for vaccination progress on&nbsp; first doses, and&nbsp; third last on full vaccinations. &nbsp;


Implications for companies



Auckland Airport&nbsp;(AIA): At heightened risk of failing next debt covenant test as at 30 June 2022. Risk to market implied recovery profile is to the downside and FY22 final dividend increasingly unlikely. FY21 result due on 19 August 2021.&nbsp;
Air New Zealand&nbsp;(AIR): Significant losses remain a feature in FY22 as outlined in recent earnings guidance update. Significant capital raise due in next seven weeks. FY21 result due on 26 August 2021.&nbsp;
Tourism Holdings&nbsp;(THL): The combination of the trans-Tasman bubble 'pause' and inter-state border closures in Australia will weigh on anticipated losses in FY22.&nbsp;&nbsp;FY21 result due on 26 August 2021.&nbsp;



Transport and Tourism Sectors: Recovery Profile up in the Air