Continuous Disclosure: Auckland Airport shares flying too high?

Auckland Airport shares appear to have got ahead of themselves, one analyst is warning. Photo / file

AIRPORT DOWNGRADE

An analyst has down-graded his rating on Auckland Airport warning the stock's share price has got ahead of itself.

Wade Gardiner, research analyst with Craigs Investment Partners, has cut the stock from neutral to underweight after a share rise in the airport company's share price.

Since hitting a low of $4.59 on March 19 its shares have rallied as high as $7.21 despite no exact timeframe on when New Zealand's borders may open to international travellers again.

"While the announcement of an Australasian bubble may provide positive news flow, we think this is already in the share price and we see risk of the timing of borders reopening to the downside," Gardiner said in a note this week.

Gardiner said with the move to level 1 restrictions he is assuming a lift in capacity to around 50 per cent of pre-Covid levels for domestic travel.

But warned even domestic passenger numbers would not return to pre-Covid levels until after the borders reopened as overseas visitors drive around 20 to 30 per cent of domestic passengers.

Gardiner said his assumptions were based on transtasman travel resuming from October with initial demand at 40 per cent of pre-Covid levels and Pacific Island services resuming from January next year.

Once markets were open he assumed it could take 18 months to two years to get back to pre-Covid levels.

But there could be some good news for shareholders. Gardiner said he understood discussions with US Private Placement debt holders were ongoing.

"Assuming AIA receives covenant waivers in line with those already received for bank debt, then under our revised forecasts we think AIA would be in a position to redeploy capital."

This could see the airport advance its capital expenditure plans or a return of capital of potentially up to $500 million to shareholders.

However he warned the earliest this might be was after financial year 2022 and it could be delayed and reduced if it took longer for passenger numbers to bounce back.

BEEFING UP

Jarden has raided it competitors again adding five more team members to its new Australian business arm.

The Kiwi investment bank announced Thursday that Aidan Allen, the former co-head of investment banking for UBS Australia would join it as a foundation member.

Allen will work alongside its Australian CEO Robbie Vanderzeil, Sarah Rennie, Dane Fitzgibbon and John Spencer to build up Jarden's Australian expansion which was announced last month.

Also joining the Australian business are Chris Tolj and Kieren Chidgey in equities, Millie Horton on corporate advisory and SooJin Yoon as head of legal & compliance and general counsel.

Tolj will join Jarden from Credit Suisse's equity sales desk while Chidgey was previously executive director in UBS' equities research team.

Horton joins from Goldman Sachs while Yoon also joins from UBS where she is the internal legal counsel.

The five new appointments will take up their roles with Jarden Australia throughout this year.

KordaMentha's valuation of retirement village operator Metlifecare shows the challenges of valuing a business in the middle of a pandemic. Photo / supplied

VALUATION CHALLENGE

KordaMentha's independent advisers' report on the value of Metlifecare has revealed the challenges of valuing a business in the middle of a pandemic.

The report was released this week ahead of a shareholder vote on July 10 on whether to proceed with legal action against Asia Pacific Village Group and its decision to pull out of a $1.4 billion takeover for the retirement village operator.

It valued the company in a range between $5.80 and $6.90 per share with a mid-point of $6.35 making APVG's offer of $7 per share look attractive, especially compared to the current trading price of around $4.70.

But the report goes out of its way to note that the valuation was made on June 5 and was based on financial forecasts made by Metlifecare in May 2020.

"Metlifecare has considered the inputs to its forecasts, which span a period of 20 years and advised on 5 June 2020 that the forecasts and projections are its best view as to its future financial performance."

"Nevertheless, Metlifecare also considers that there is uncertainty as to the economic conditions over the next few years, which makes it difficult to forecast its near-term financial performance with any degree of certainty."

KordaMentha notes it has used a discounted cashflow methodology to value the business based on Metlifecare's forecasts over the next 20 years.

"Metlifecare considers that there will be a short term impact on its operations from the lockdown restrictions and also expects there to be reduced residential housing market liquidity caused by economic conditions over the next two years, resulting in some softness in the prices for retirement village units and slightly longer periods between unit vacation and resettlement.

"However, Metlifecare expects that the longer term impact from Covid-19 on its financial performance will be minimal."

KordaMentha said it had also added an 8 per cent premium to the discount rate use for development operations to account for the added risk of undertaking new developments.

"This premium is higher than we would have applied prior to the Covid-19 lockdown restrictions. We consider a higher premium is appropriate to take account of the increased uncertainty at the present time."

It also assumes Metlifecare's units decrease in value by 2 per cent in its 2021 financial year before rising half a percent in 2022, 2 per cent in 2023 and 3 per cent in 2024.

That could be a little ambitious given bank economists are forecasting a median drop of 5.8 per cent in 2020 followed by a 3.8 per cent rise in 2021.

But the report notes Metlifecare considers retirement village units to be "less price elastic" than the general housing stock.

KordaMentha goes on to say that its forecasts for the valuation take into account property prices rising at a rate of 3.4 per cent per annum over the longer term.

"If property prices increase faster or slower than forecast, then this would have a significant impact on the value of Metlifecare."

Finally it noted that it was impossible to know the exact impact that Covid-19, the lockdown restrictions and resulting economic conditions would have on Metlifecare's performance.

"For example, it is possible that there will be additional lockdown periods. It is also unclear what impact Covid-19 might have on the demand for units in the longer term.

"There might be reduced demand if there are significant outbreaks of Covid-19 at multiple villages. In contrast, retirement villages that are shown to have effective systems in place that keep the elderly safe might have increased demand on their units."

In any case the valuation will have to be updated if the Scheme Implementation Agreement actually goes ahead, depending on the outcome of the litigation, which may make any valuation a moot point.

The New Zealand Rural Land Company will look to buy dairy farms in prime areas like the Waikato. Photo / file

AGRICULTURE EXPOSURE

There has long been criticism of the New Zealand stock exchange for its lack of exposure to New Zealand's agricultural sector.

But a company looking to list in June next year could help fill that gap.

Elevation Capital chief executive Christopher Swasbrook is behind a new investment company called the New Zealand Rural Land Company.

It is currently raising money from wholesale investors to directly buy rural property but hopes to undertake a compliance listing in 2021.

Swasbrook said the company aimed to take advantage of the current government's foreign buyer restrictions and the reduced flow of funding to the rural sector due to the Reserve Bank's increased risk-weighting capital requirements.

The company will look to raise a minimum of $75m to buy rural land, initially in dairy but extending to other rural property and lease it back to operators for an initial 10 years with a five year right of renewal.

Swasbrook said it decided to go unlisted to start as it wanted to purchase large scale farm assets and build up its investments before going to the public market.

He said buying the land only and becoming the landlord took away the volatility associated with animal health, weather and commodity prices.

"We are stripping that out and will turn it into a regular income."

He said waiting until June to list would give it time to get audited accounts done which it needed for regulatory approval.

"A listing is subject to regulatory approval. That is a realistic timeframe."