The influx of New Zealand companies dual-listing on the Australian Securities Exchange has been a good development in recent years. Having more NZ companies on ASX adds to stock diversity and several Kiwi companies have delivered excellent returns.
Dozens of NZ companies have joined ASX in the past four years through the Initial Public Offering – a trend that has been a little quieter this year because of a weaker IPO market.
Nine of the top 10 NZ-listed companies by capitalisation and more than half of the top 50 have a primary listing on the NZ stock exchange (NZX) and a secondary listing on ASX.
More NZ companies are dual listing on ASX to attract capital from Australian fund managers and benefit from higher share liquidity and market profile. A dual listing can help NZ companies potentially achieve higher valuations because there is a larger number of similar stocks for comparison. Some dual listings attract Australian stockbroking research coverage.
As investors focus on emerging NZ companies that dual list on ASX, particularly from technology sectors, it’s been a few NZ ‘veterans’ that have caught my eye this year. Auckland International Airport and Air New Zealand especially stand out, after share-price rallies this year.
This column’s readers know I have was bullish on Sydney Airport for many years, principally because of the megatrend of in-bound Asian tourism into this country. However, Sydney Airport, a terrific stock, is fully valued after gains in the past few months in a weak market.
I became bullish on Qantas Airways for The Bull in June 2016 in my article, “Qantas approaching radar for value investors”. I suggested Qantas was one of the world’s cheapest large-cap airlines at the time; it has rallied from $3.08 in mid-2016 to $5.73 and still looks modestly undervalued.
Some key themes driving Sydney Airport and Qantas are apparent in their NZ peers, Auckland International Airport and Qantas. Like Sydney Airport, Auckland International Airport is benefitting from in-bound Asian tourism and greater aviation activity.
Air New Zealand, like Qantas, is benefitting from efficiency gains, better route expansion and optimisation, lower fuel prices and good management. Air New Zealand, too, has rediscovered its mojo and is shattering the myth that large-cap airline stocks are terrible investments.
Auckland International has an annualised total return (including dividends) of 22 per cent over three years, Morningstar data shows. The stock is down 15 per cent over one year. Air New Zealand has a 37 per cent annual return over three years, making it among the best performing Trans-Tasman large-cap stocks.
Perhaps the market sees FY18 as a year of consolidation, in part due to Auckland International guiding for modest top-line sales growth. Then, stronger growth in FY19 and beyond as airport redevelops drives a step-change in retail sales revenue due to much greater floorspace.
Macquarie Equities has an outperform recommendation and 12-month price target of A$6.97 (Auckland International traded just below $6 this week on ASX). That suggests reasonable upside from a high-quality asset that is benefitting from continued strong passenger growth and has the upcoming redevelopments as potential re-rating catalyst for the share price.
Charts will want confirmation that Auckland International holds price support on its chart around $5.80. A decisive break through that level could see further short-term price fall.
Chart 1: Auckland International Airport
Source: The Bull
Meanwhle, Air New Zealand delivered a solid FY17 result that led to some broking firms upgrading price targets. Profit before tax of NZ$527 million was slightly ahead of market expectation and a final 11 cent per share dividend was 10 per cent up on the same period last year.
It was a good result given rising competition in international aviation, Air New Zealand said it is “optimistic” about overall market dynamics and expects to improve on 2017 earnings. Air New Zealand costs are well managed and its aircraft utilisation and yield are solid.
Like Qantas, Air New Zealand has an excellent market position, prominent brand and improving customer experience. It also has rising return on invested capital. Both trans-Tasman airlines have come through their transformation program better than the market expected.
At NZ$3.55, Air New Zealand trades on a forecast FY18 PE of around 10 times, according to consensus analyst forecasts. Like Qantas, Air New Zealand is valued below the global airline PE average, despite its improving operational performance.
The consensus price target of NZ$3.55, based on the average of six broking firms, suggests Air New Zealand is fully valued at the current price. The stock can do better than the market expects as it uses gains in FY17 as a platform for stronger growth in the next few years.
Chart 2: Air New Zealand
Source: The Bull