New Airline Partnerships And Terminal Expansions Will Increase Air Connectivity

Key Takeaways

• Enhancements in air connectivity, terminal expansions, and strategic route prioritization could increase passenger numbers and drive revenue growth.
  
• Investments in technology, infrastructure, and new retail spaces aim to improve customer experience, boosting satisfaction and revenue streams.
  
• Competitive pressures, capacity constraints, and rising costs pose risks to Auckland International Airport's growth, potentially affecting revenue, margins, and earnings.

Catalysts

Provides airport facilities, supporting infrastructure, and aeronautical services in New Zealand.

• Auckland International Airport is focused on enhancing international air connectivity by forging new airline partnerships and stimulating demand from foreign visitors. This increased connectivity can enhance passenger numbers and thereby drive revenue growth.
  
• The progress in their substantial aeronautical construction program, including terminal and airfield expansions, aims to increase airport capacity and resilience. This investment will likely improve operational efficiencies and boost passenger and cargo capacity, enhancing future revenue and potentially improving net margins through scale.
  
• Their investment in technology and infrastructure upgrades, including self-service kiosks and digitization, is aimed at improving the customer experience. This can lead to increased customer satisfaction and spending, thereby driving up revenues and net margins over time.
  
• The opening of new retail spaces like the Transport Hub and Manawa Bay is expected to boost commercial income as these developments become fully operational and attract new customers, thereby increasing revenue streams.
  
• As global economic and capacity constraints ease, aviation activity may recover more robustly, potentially improving load factors and ticket sales, which will positively impact revenues and profitability. Additionally, strategic efforts to prioritize direct air routes could stimulate higher spending, benefiting overall earnings.

Auckland International Airport Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Auckland International Airport's revenue will grow by 15.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.2% today to 29.9% in 3 years time.
• Analysts expect earnings to reach NZ$415.5 million (and earnings per share of NZ$0.25) by about March 2028, up from NZ$74.1 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as NZ$336.5 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 54.5x on those 2028 earnings, down from 178.8x today. This future PE is greater than the current PE for the AU Infrastructure industry at 42.1x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.86%, as per the Simply Wall St company report.

Auckland International Airport Future Earnings Per Share Growth

Risks

• The highly competitive global market for attracting tourists and securing airline routes poses a risk to Auckland International Airport's ability to grow passenger numbers, potentially impacting future revenue and earnings.
  
• Capacity constraints in both the domestic and international markets, along with local economic conditions, are affecting growth and may suppress revenue and operating margins.
  
• Increased operating costs, including a rise in asset management, maintenance, and airport operations, could put pressure on net margins even as revenue increases.
  
• Ongoing structural challenges in retail, particularly in luxury segments and foreign exchange services, could impact retail revenue and profitability.
  
• Any potential adjustments from the Commerce Commission regarding the airport's weighted average cost of capital could impact future revenue and earnings potential.

Valuation

• The analysts have a consensus price target of NZ$8.52 for Auckland International Airport based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of NZ$9.8, and the most bearish reporting a price target of just NZ$6.65.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be NZ$1.4 billion, earnings will come to NZ$415.5 million, and it would be trading on a PE ratio of 54.5x, assuming you use a discount rate of 8.9%.
• Given the current share price of NZ$7.88, the analyst price target of NZ$8.52 is 7.5% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.