Model and target price update (pre results)
Based on the above changes I expect 25c EPS for 2014. My target valuation for 1 year ahead is $2.50 based on a historic P/E of 10x, or 9x + 25c for stake in Virgin.
I believe the multiple chosen is supported by the prospects of further earnings growth of 20% to around 30c EPS in 2015, as 5 new aircraft (777+787) arrive at the end of FY 2014. (this is based on current fuel and FX estimates). We should see good capacity growth support 5-10% pax revenue growth in FY15 - (777-200 refit also a tailwind as is more A320 domestic).
Air NZ is in a sweet-spot for the next 3-4 years. The usual caveats with airlines apply - I am satisfied with the margin of safety here, and it goes without saying am heavily invested. Most recently I topped up to the tune of 200k at $1.45.
Short term and comment on Full year results (due Thursday)
Recent guidance has been provided suggesting top of the range (around 17c EPS) and that this is after the cargo penalty of $7.5m. Estimating closer than that would be pointless. I am looking forward to seeing progress on cost reduction. Recent reports suggest good progress is being made. My model features higher costs than some analysts such as Macquarie, so I hope results give me scope to reduce and increase my FY14 EPS number further (lets see).
Consensus has the full year dividend at 4c. I would be disappointed by this but NZ has been spending on new a/c and more shares in VAH.
Elsewhere it will be interesting to hear when they think 767 retirement will be, some suggestions they might stick around longer to enable higher growth in FY15. Maybe a bit of an anti-climax for me generally, I don't expect much on strategy etc (its all well known). Although a 300% increase in profit shouldn't be an anti-climax - I'm sure the media will have a field day. Lots more to come for this stock - happy holder.