New Zealand Travel Recovery And Infrastructure Upgrades Will Boost Future Airport Prospects

Key Takeaways

• Recovery in international travel and new infrastructure investments are set to boost revenue and earnings growth.
  
• Sustainability efforts and property portfolio expansion support stable revenue and enhanced operational efficiencies.
  
• Cautious profit expectations reflect slow travel recovery, potential regulatory adjustments, increased borrowing costs, and risks from economic and competitive challenges impacting revenue and earnings.

Catalysts

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

• The strong recovery in international travel and increasing number of airlines and routes is expected to drive future revenue growth as passenger movements continue to rise, impacting revenue and earnings positively.
  
• Significant capital investments in infrastructure, including the largest upgrade in the airport's history, are poised to enhance operational capacity and customer experience, potentially improving revenue and net margins once completed.
  
• The company’s successful implementation of new aeronautical pricing and increased retail and commercial activities are contributing to a lift in revenue, reflecting potential for sustained earnings growth.
  
• Expansion in property rental income from completed developments and high occupancy rates demonstrates resilience in the property portfolio, supporting stable revenue streams and net margins.
  
• Continued focus on sustainability initiatives and long-term investments to reduce emissions may lead to operational efficiencies and cost savings, bolstering net margins in the future.

Auckland International Airport Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Auckland International Airport's revenue will grow by 13.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.6% today to 30.3% in 3 years time.
• Analysts expect earnings to reach NZ$377.1 million (and earnings per share of NZ$0.23) by about February 2028, up from NZ$5.5 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting NZ$477.7 million in earnings, and the most bearish expecting NZ$334.5 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 48.4x on those 2028 earnings, down from 2663.4x today. This future PE is greater than the current PE for the AU Infrastructure industry at 30.9x.
• Analysts expect the number of shares outstanding to grow by 0.35% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.39%, as per the Simply Wall St company report.

Auckland International Airport Future Earnings Per Share Growth

Risks

• The guidance for Auckland Airport's underlying profit after tax reflects cautious expectations due to constrained domestic and international travel recovery, which may impact revenue growth.
  
• The Commerce Commission's draft report questions Auckland Airport's pricing methodology, suggesting potential over-earnings, and any mandated adjustments could reduce future revenue.
  
• International travel recovery has been slower for New Zealand compared to other regions, with issues such as high travel costs and competition affecting inbound passengers, which could impact aeronautical and retail revenues.
  
• Despite a strong investment in infrastructure, the need for significant CapEx funding may result in increased borrowing and higher interest expenses, potentially reducing net margins and cash flow.
  
• The current economic and competitive environment, including constraints on airline capacity and global supply chain issues, poses risks to the forecasted growth in passenger numbers, affecting future earnings.

Valuation

• The analysts have a consensus price target of NZ$8.438 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$7.21.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be NZ$1.2 billion, earnings will come to NZ$377.1 million, and it would be trading on a PE ratio of 48.4x, assuming you use a discount rate of 8.4%.
  
• Given the current share price of NZ$8.71, the analyst price target of NZ$8.44 is 3.2% lower. 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.