Falling Oil prices and depreciating NZ$ are perceived by investors as positive.
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Falling Oil prices and depreciating NZ$ are perceived by investors as positive.
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I stand to be corrected You are right Modandm. Thanks for that.... It seems my brain became disengaged while writing that post...I'm obviously not used to writing such small posts.. ;)
A quote from the Interim Review report 2012
Foreign Exchange Impact
"Overall the Group benefits from a stronger New Zealand dollar as a
result of costs decreasing more than revenues fall.
The full benefit of the stronger New Zealand dollar is delayed due
to the currency hedging programme, which......."
Pre June stats update:
Some interesting developments in the fuel price since I last posted on AIR guys. Jet fuel was at around $135-140 USD levels in Feb-March-April and now is down at $116 USD barrel. For reference NZ expects to burn about 7.5 million barrels of jet fuel in FY13.
This will have a very material impact on NZ FY13 profit. I have been over the Goldmans and the Credit Suisse research as well as AIR's hedging updates and I can say that if you use $120 USD barrel for jet vs $142 USD which is what the analysts were using (in their latest notes 1 or 2 months ago) the upside to earnings is about +10cps.
Just to give an idea - GS has FY13 eps at 7c and after you factor in $152million USD of fuel savings EPS goes up to 19c
using the CS numbers (more agressive) they have FY13 eps at 10cps and after you factor in $152million USD of fuel savings EPS goes up to 22c
You might ask if NZ has hedged at a higher rate - no they have not based on last hedge update - they have bought a small % of calls (28% - FY13 consumption) for FY13 which will expire worthless but not set a collar structure or fixed the price on the downside. Possibly they have used recent oil price weakness to actually buy calls at $110-$120 per barrel - in WTI equivalent.
Anyway this upside to consensus forecast combined with my favourable view on NZ based on:
- Upside to Longhaul review
- Cost cuts
- Improving competitive environment and rational behaviour by competiors
- Strong competitive position in all markets bar europe
- Fleet renewal benefits starting to kick in as costs of transition mostly gone (77W now A320 4 arrived 10 more to come ATR 72 soon)
- Low capex until 787 arrive
- Potential for increased dividend
Means I am very bullish on the stock - much more than I was 2 months ago:t_up:
Catalysts to share price gains
- Upgrade to broker estimates to account for new lower levels of fuel cost - I would expect updates to flow following operating stats which are due end of week or early next
- Positive surprise at Aug 30 results
- Consencus or even weak results at Aug 30 results BUT strong positve comments
Anyway it would be great to hear your feedback
Thanks for your well informed post Modandm..much appreciated
The Air shareprice has always been cyclical. This is very close to the bottom of the cycle IMO
I agree with your comments Modandm.
Bullish comments this morning on National Programme Business from both Palmer and Fyfe. Much more upbeat than the article in the Herald.
I am a buyer at these levels.
Update on July Stats, Fuel Hedge position, Virgin Australia, and my results preview and FY13 outlook - pre earnings:
July stats
Materially weaker than June's stats clearly.
Domestic - weakening trend starting to become a concern. Yields down 4.5% and demand down 1.8% but is lapping tough comps which explains half. Still I am looking for reassurance that the domestic position remains strong.
Tasman/Pacific - strong result - +7.6% lapping a +7.2% comp. Capacity up 10% with the renewed focus on strongly performing regional routes such as Perth and Hawaii. Very pleasing result. Continued benefit of Virgin Alliance no doubt.
UK/North America - Solid result +4% continues June momentum. You can see the impact of QF pulling of LAX in the last two months numbers.
UK/Asia - Weak result really +4% with capacity up 13.5% lapping an easy comp of -12%. Unable to continue the momentum of June's +16%. Load factor sub 80%. Poor
Yields - Poor start -4.5% on longhaul offsets +1% on shorthaul for a groupwide -2.2. Analysts have -2%-3% in their numbers which I thought was too conservative but maybe they are right. One month down a long way to go.
Fuel and hedging
Well the fuel price is back up to where it was a few months ago. So my super-bull case has already died :( . Still upside but lets wait for results before I reset my valuation.
They have made about $4.5m in hedging gains since last reported. Have got good protection against any further increases in fuel price from here - at least for the first half. I am a little disappointed they weren't able to lock in more at the lower prices of last month - but I don't know what the option premium would have been.
VAH reported
Good results - shareprice now at 46-48c - seems NZ made a good investment really. Not as interesting a business as NZ for me and competition with QF will keep earnings growth constrained. Still futher profit growth ahead no doubt. Just would suggest alot of good work and good news is now in the stock. Management has really delivered.
Looking foward to Thursday - will be thouroughly looking through results.
Am expecting:
Revenue: 4519M
Normalised PBT: 79M
Normalised NPAT: 55M
Close to concensus - but really it could easily surpise 10 or 20m either side. Hopefully not more! Real driver of shareprice will be FY13 outlook and management commentary around the progress of the game change program. How much cost saving run rate has been achieved, and where are yields heading based on forward booking profile.
Pre results I am forecasting Fy13 Pax revenue up 4% with RSK growth accounting for most of that and yields flat. Analysts are more bearish than me with -3% yield and 1% RSK growth. Looking for FY12 CASK of 12c and FY13 CASK guidance of 11.5c as non-fuel costs are trimmed.
Cheers, and thanks to those who said they enjoyed reading my posts on the other thread.
WOW!! what a result considering the tough environment.
104 up 14.5c
Yes, great result and very positive outlook for the current year from Palmer at the press conference.
Makes the analysts look a bit foolish - per NBR they were only about 80% out. Outlook is very promising so hopefully they will deliver. I may even make my money back on this one.