Stock in Focus: Auckland International Airport (AIA.NZX)
Auckland International Airport shares rose +2.9% to reach fresh post-Covid highs, as recovery in interntional travel saw revenue and profits soar. Operating earnings (EBITDAFI) tripled from last year to $189m for the period.
The result should not have come as a major surprise, given strong updates from major airlines indicating heightened demand. However we believe Auckland International Airport is now hugely over-valued. Whilst operationally investors are optimistic on a full recovery, they aren’t yet adjusting for the high interest rate environment – which had been a contributing factor to AIA’s valuation pre-Covid. We downgrade AIA to a Sell, due to its heightened valuation. Due to its importance as an infrastructure asset, we see attractive buying at around the low $7.00 area.
New Zealand Market Movers
The New Zealand Market (NZX50 Index +0.8%) on a busy day of earnings.
Air NZ shares slipped -1.2% after revealing their half year profit before tax came in at $299m- which came as no surprise as it was flagged earlier to the market. Similarly to Air NZ, Tourism Holding’s strong result had a muted reception, with the stock up just +2.7% intraday. Mgmt said they would consider recommencing a dividend at the end of the 2023 financial year – we are BUY rated on THL as our top tourism pick.
Scales Corporation shares were one of the top performers of the day up +5.4% after being oversold over the last 2 weeks. The full-year result ending December 2022 was mixed with China lockdown affecting demand and pricing offset by its strong food business. Management still paid a half year dividend hinting things aren’t as bad as the market sell-off suggests given 11 of their 15 orchards were unaffected – ~72% of Scales’ output. We change Scales to a High Risk BUY, but we are only buyers below $3.30 – until there is further information on regarding the cost of repairs to the damaged orchards.
Sky TV slipped -1.9% as its profit fell -7.5% from last year down to $26.2m as costs associated with keeping Vodafone TV service open for longer weighed upon operating margins.
Australia Market Movers
The Australian market (ASX200 Index, -0.4%) on a mixed day of earnings resutls.
Qantas was the major disappointment descending -6.8% despite revealing a $1.42 billion profit before tax. They did not reveal a dividend but indicated a plan to buy back $500m worth of shares, whilst lifting capex requirements in an attempt as the airline tries to claw back capacity to pre-Covid levels.
US Market Movers
The S&P 500 was up slightly at +0.53%. Dominos Pizza, which we are hold-rated on, plunged more than 11% on the back of like-for-like sales growing less than 1% in the fourth quarter – this was actually lower than our Q3 report on the company where we suggested sales might slow to 3% – i.e. Domino’s results were worse than anticipated. The other “ugly” part of the result was gross margin: it declined by about 1% sequentially to 36.8% – we wrote that declining margins were a concern in our last report and note that they continue to be a problem, as the cost of paying employees, the cost of ingredients and cost of fuel+transport continue to weigh. Retain hold but we could see the stock upgraded to a buy if its multiples continue to contract; we like Dominos at 21x earnings at under.
Read-through here is interesting, though – Domino’s is part of that basket of high frequency “cheap” consumer goods we keep an eye on. Slowing sales are a sign that consumer spend is shifting from Pandemic-winners to experiential spend like travel (see: AIA and Air New Zealand’s results). Is it a sign that consumer spend is starting to wane? In other news, MANU (glory, glory Man United – buy) rose +1.33% after a pullback as managment weighs bids for the club, and Warner Brothers Discovery (buy) rose +2.01% as managment’s prudent attitude to pricing begins to look awfully sensible against Netflix’s (neutral) recently annouced price cuts (you have to question the logic of cutting prices in an inflationary market!)