Air New Zealand is due to report its half year result on February 24. Photo / File
All eyes will be on Air New Zealand next week, to see whether it announces the details of its capital raise.
The airline, which is due to report its result next Thursday, has said it would announce its plans before the end of March but has already pushed that back several times, amid the ongoing uncertainty caused by the pandemic.
Jarden analysts Andrew Steele and Nick Yeo said in a note this month that they believe there is a reasonable chance the capital raising may be further delayed.
"Given the demand and operating uncertainty regarding the impact of the Omicron variant, we believe there is a reasonable chance that the capital raise may be delayed further from its current timetable of the first quarter of 2022.
"While we view border reopening as an important operating development, we believe the ramp-up and severity of Omicron over coming weeks will be the key driver of whether or not there is a delay to recapitalisation."
Omicron cases have surged to over a 1500 a day this week and there are likely to be plenty more to come.
The analysts expect Air New Zealand to require $1.2 billion of new equity to reset its balance sheet but they see a risk that the actual amount could be even higher.
That level of capital would put it on par with Auckland Airport's April 2020 capital raise, which was widely supported by institutional investors.
Air NZ has already said it expects to have drawn down $900m of the Government's standby loan facility by the end of this month.
Steele and Yeo predict Air NZ will report a heavy loss for its half-year result, forecasting a before-tax loss of $271 million.
They expect the airline to continue to make an underlying loss before tax of $787m in the 2022 full-year and an underlying loss before tax of $265m the year after that, before it returns to profitability in the 2024 full-year.
The rising cost of jet fuel is also weighing on the results. Jarden has a sell rating on the stock and has downgraded its target price from 80c to 75c thanks to downward earnings revisions.
Forsyth Barr analysts Andy Bowley and Matt Noland are more upbeat, with a target price of $1.10, although they also have an underperform rating on the stock.
But they warned that with guidance withdrawn and depleted revenue, there was a higher margin for error in market estimates than usual for Air NZ.
Bowley and Noland are forecasting an underlying loss before tax of $444m for the half against a market consensus of a $359m loss. They estimate it will take until the 2023 full-year before the airline is back in the black - and even then its net profit after tax could be a slim $27m.
Analysts nudged up the target price for Infratil this week after its investor day, where management attempted to convince the market that it is not recognising the value of parts of Infratil's portfolio.
"Infratil is getting somewhat impatient with what it considers the market's lack of appreciation for its first-class assets," wrote Forsyth Barr analysts Aaron Ibbotson and Matt Montgomerie, as they raised the broker's target price by 5c to $9.20.
Morrison & Co, Infratil's manager, has for some time maintained that the types of assets it owns, particularly renewable electricity developers and data centres, are changing hands in the private markets at valuations well above listed valuations.
Nevill Gluyas at Jarden said he was inclined to agree, but warned that Infratil tended to trade at a lower retention value until a sale of part of its portfolio was imminent. (Jarden upped its target price on Infratil by 35c to $8.60).
This happened in early 2021 when Infratil reviewed - then sold - transtasman wind farm developer Tilt for about $3 billion, roughly double what it was trading at before a strategic review.
The market's lack of appreciation for Tilt, and Aussie data centre company CDC, was credited for Infratil adding around $1b in value thanks to AustralianSuper's aborted approach of late 2020.
Another value-proving transaction may be looming, with the management of Longroad Energy, the US renewables developer in which Infratil has a 40 per cent stake, confirming a process was underway to bring in a new investor. Partly to bring in new capital, the sale also appears partly designed to prove a point about what the business is worth.
If the market is caught out again, it will be a case of the best lessons needing to be relearned.
In an exit interview in late 2021, former Infratil chief executive Marko Bogoievski lamented that he had warned analysts that, having failed to see the value of Tilt and CDC, they were failing to spot another gem.
"The last three or four presentations I did, I made a point of saying, Longroad's a sleeper, you need to pay more attention, it's basically going to do what Tilt did and what CDC's done to you. Basically, it hasn't moved."
While borrowers have been bemoaning their lack of access to bank loans under tighter credit laws, it seems at least one finance company is seeing the benefit of more customers coming its way.
Small business lender Prospa, which is ASX-listed, reported that it had seen a 110 per cent rise in loan originations in its New Zealand arm over the six months to December 31 compared with the same period in 2020, to reach A$50.4m.
NZ managing director Adrienne Begbie said the strong economic environment despite Covid restrictions was driving the growth. "The brand is growing, people are getting to know us, we are reaching more and more people."
Begbie said banks continued to pull back on lending to small and medium-sized businesses, with Reserve Bank data showing business lending by banks had fallen from $13 billion in November 2019 to $9b in November 2021.
She said its rise in loan originations was also a flow-on effect from the tighter credit conditions bought about by the Credit Contracts and Consumer Finance Act.
"Small business owners often blur personal finance and business finance so if they are going to the bank they will take their security, take their house, so they will come under those rules. So having access to pure business lending - we do up to $150,000 for their business, we are picking up a lot as well."
Co-founder and CEO Greg Moshal said there was still an undersupply of lending to SMEs in both Australia and New Zealand. It has been operating in Australia for 10 years and in New Zealand for three.
Moshal said Prospa had seen through the pandemic how resilient small businesses were and how they were able to adapt and quickly evolve in the face of changing situations.
"There still is a strong underlying economy, there is a really good unemployment rate, healthy savings balances. The governments have done a good job of giving support at a time when it was really needed."
Begbie said its arrears were sitting around pre-Covid times. She said its average loan size was now larger than in 2019 and often people were borrowing to cope with things like supply chain issues.
"So instead of buying in one container of stock they are getting in two or three so they are actually growing their business."
The company is planning to launch its line-of-credit product in the New Zealand market by June. The product operates like an overdraft and users only pay interest on the amount drawn down. Moshal said the product was hugely popular in Australia.
- additional reporting Hamish Rutherford.
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