Air NZ 40 per cent overpriced: broker

By DANIEL RIORDAN and NZPA

Air New Zealand shares are almost 40 per cent overpriced and likely to lose more value as Qantas increases its presence here, according to the country's biggest retail broker, Forsyth Barr.

Forsyth Barr values the stock at 24c a share, compared with its current price of 33c.

The broking firm estimates Qantas holds close to 40 per cent of the market on main domestic routes, the market that is crucial to keeping Air NZ profitable.

Research head Rob Mercer continues to advise his clients to sell their Air NZ shares.

The airline's interim result last week has done little to change analysts' valuations of the company and most continue to recommend that investors sell down.

Among other brokers, ABN Amro Craigs has a sell recommendation on the stock and CS First Boston and Macquarie Equities suggest that clients should be "underweight" in their Air NZ holding.

JBWere suggests that clients hold their Air NZ shares.

Mercer could not say exactly how much Qantas' market share had gone up recently but he said Qantas was getting bigger in New Zealand and its share could be several percentage points higher by the end of the year.

"Recent competition from Qantas on New Zealand domestic routes has been fierce, with the Australian carrier now holding a 40 per cent market share on the main trunk routes and 30 per cent in total," Mercer said in a report to shareholder clients last Thursday.

The day before, Air NZ had reported a worse-than-expected loss of $376.5 million for the half-year to December 31.

Two weeks ago, as it denied claims of predatory pricing, Qantas put its market share at just 20 per cent.

Mercer said the battle in New Zealand was likely to intensify as Qantas continued to expand services, both directly and via its alliance with Nelson-based Origin Pacific airline.

Forsyth Barr painted a gloomy picture for the airline. The demise of Ansett Australia was still an ongoing negative for Air NZ because that left it without a substantial partner to move passengers from international to interstate flights in Australia.

"The environment for Air New Zealand's international services also faces difficulties.

"While we anticipate a pick-up in general travel as fears surrounding the events of September 11 dissipate, its anticipated yields will not recover to previous levels," Mercer said.

Lurking in the background, too, is the ownership question, with indications that Qantas continues to beat a path to Finance Minister Michael Cullen's door about buying a stake in Air NZ.

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