Air New Zealand (ASX: AIZ) shares are cleared for take-off

Marc Kennis Marc Kennis, September 23, 2022

Who is Air New Zealand?

Air New Zealand (ASX: AIZ) provides passenger and cargo transportation services in New Zealand, Australia, the Pacific Islands, the UK, Europe, Asia and the US. 


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As of June 30 2022, it operated a fleet of 7 Boeing 777, 14 Boeing 787, 31 Airbus A320s, 29 ATR 72 and 23 Bombardier Q300 aircrafts. The company was incorporated in 1940 and is based in Auckland, New Zealand. 


Let’s start with Air New Zealand’s chart and see what moved its share price since early 2020. 


Air New Zealand

Air New Zealand, Daily Chart in Semi-log Scale (Source: Metastock)


Air New Zealand raises NZ$1.2b equity capital in a renounceable rights offer to all eligible shareholders. (Renounceable Issue) 

Air NZ provides earnings guidance for 1HY23 in a range of $200m to $275m. (Air NZ provides half year earnings guidance for FY23) 


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A recapitalisation and the bear market took down the share price 

Air NZ’s share price seesawed most the pandemic period in a range of 80 cents to $1.10. But the company had to raise a lot of equity capital in March 2022 as part of a comprehensive NZ$2.2bn recapitalisation package to maintain its investment grade credit rating and prepare itself for a post-pandemic recovery. 

The massive capital raise increased the number of shares on issue by 50% and the dilution put downwards pressure on the share price, which was further accelerated by the bear market and took down the share price to around 50 cents in June 2022. 

The bear market rally that started in July, combined with the recovery in travel thematic, helped AIZ’s share price recover above 60 cents. The uptrend in the share price has now lasted for more than three months and it was further boosted by the company’s recent positive earnings guidance for 1HY23. 


New Zealand has opened up 

New Zealand fully opened its international borders to all visitors from all countries from 31 July 2022. AIZ responded to the pent-up demand by resuming flights to most of its international destinations, reanimated its stored aircraft and reinstated its offshore sales offices. In addition, the company launched a non-stop service to New York in September, where Qantas is planning to launch theirs by 2025. 


Network utilisation continues to improve 

Bookings on the domestic network are now at around 105% of pre-pandemic levels with the international network around 75% currently. Corporate bookings continue to improve towards pre-pandemic levels and AIZ expects an overall FY23 capacity utilisation of around 75-80% of pre-pandemic levels.  

The completion of the $2.2bn recapitalisation restored the company’s balance sheet and liquidity metrics and funds the company’s recovery process. 


Very profitable FY23 ahead 

The company has provided earnings guidance in a range of $200m to $275m for 1HY23, but it says it can’t provide full-year guidance at this time due to the uncertainties regarding the volatility in jet fuel prices and the global recessionary risks and inflation.  

Consensus analyst estimates imply EV/EBITDA multiples of 4.0x and 3.7x for FY23 and FY24 respectively, with diluted earnings per share of 4 cents for FY23. This gives Air New Zealand a forward P/E multiple of 16x at the current share price. 


Target price of 80 cents implies 25% upside 

We expect the share price to continue to increase alongside the current uptrend (the green line on the chart) to reach the resistance level of 80 cents (the red line on the chart) in the next few months based on the current market conditions. This would imply about 25% upside in the stock! 


Stop loss at 60 cents 

The volatility in jet fuel prices and the looming economic recession can change the positive picture. Therefore, we suggest using a stop loss level of 60 cents based on the current share price. A confirmed break below 60 cents would mean that the uptrend is broken and it increases the risks of further declines in the share price. 


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