Air NZ shares dive despite soaring profit
Air New Zealand’s share price has dropped 16% in the last three months and nearly 6% since announcing a record $NZ327 million ($A295 million) net profit this week and indicating a significant earnings uplift for the 2016 financial year.
Deutsche Bank analyst Chris Byrne said in a research note that the negative reaction to the 2015 full-year result suggested the market was disappointed no special dividend was announced and remains concerned about the airline’s ability to profitably fill capacity increases over the next year as economic activity weakens and competition increases.
Following this year’s result, analysts covering the stock have bumped up their expected 2016 earnings based on jet fuel savings, 11% capacity growth, and a stronger contribution from its 26% stake in Virgin Australia.
That’s partly offset by concern about new competition, including Jetstar on regional routes, Chinese airlines, and from Qantas alliance partner American Airlines on trans-Pacific flights.
The analysts have a dimmer profit outlook for the airline in the following two years when oil prices are expected to rise, the NZ dollar weakens, and increased competition hurt earnings.
First NZ Capital analyst Paul Turnbull said in a research note that the direction of jet fuel prices and currency will lead to significant excess returns in 2016.
“However, we also believe that the competitive dynamics of the airline industry will apply downward pressure to Air New Zealand’s returns in the medium-term.”
Target prices for the stock from Deutsche Bank, First NZ Capital and UBS range from $NZ2.40 to $NZ3.15 compared with the $NZ2.50 share price on Friday afternoon.
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