The Business Herald’s markets and banking reporter.

Stock Takes: Airport high could have a downside

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Shareholders are advised to bank some profits before any unexpected hits.
The tourism boom helped push Auckland Airport's market capitalisation past $8 billion. Photo / Greg Bowker
The tourism boom helped push Auckland Airport's market capitalisation past $8 billion. Photo / Greg Bowker

Auckland Airport hit an impressive milestone this week as its market capitalisation sailed across the $8 billion mark for the first time.

It's an eye-popping figure, achieved following a 25 per cent rally in the stock between the reporting of the company's half-year result on February 19 and Tuesday, when the shares closed at a record high of $6.895.

New Zealand's biggest airport has been riding high on a tourism boom and its interim financials included a 25 per cent lift in first half profit, to almost $116 million. But is the company's lofty valuation - which gives it a price-to-earnings ratio of more than 30 times - getting ahead of itself?

Craigs Investment Partners, which has a sell recommendation on the stock, thinks so.

The brokerage is advising clients that it's probably a good time to bank some profits.

"You can tick a whole range of boxes in Auckland Airport's favour in terms of quality of assets, management and the tailwinds from tourism," said Mark Lister, head of private wealth management. "When you get to the valuation box you really struggle to justify where it is."

Risk rising

Auckland Airport is at the lower end of the risk scale as far as equity investments go. But there are areas where it could slip up, of course, such as an unexpected drop in visitor numbers resulting from a major terrorism event or global economic downturn.

"If anything happens that causes the investment case to stumble there is further for [the stock] to fall because its starting point is so much higher," Lister said. "It's a low-risk company that's become a higher risk investment simply because of where the share price is."

Auckland Airport shares closed at $6.58 last night, valuing the company at $7.8 billion.

Sausage surprise

As it gears up for an $800 million public share offer, Tegel Foods could have done without the unsettling tale of a rat foot saveloy surprise.

The Ministry for Primary Industries confirmed this week that the object Whanganui woman Candace Mosen says she found in her son's Top Hat sausage, supplied by Tegel, was indeed a rodent's appendage. It was in fact the left front paw, said MPI, which is investigating how it came to end up on young Lucas' plate.

Tegel, owned by Asian private equity firm Affinity Equity Partners, has said it's looking into the issue. Given the Kiwi poultry producer has been hosting potential Australasian institutional investors at site visits of its facilities this week, it wasn't the greatest time to have the story in the media. It even made the UK's Daily Mail. Who knows what's happened here, but awkward questions may have been raised by the visiting fund managers.

The float, though not officially confirmed, is tipped to value Tegel at around $800 million and raise up to $500 million. Formal marketing of the deal may begin as early as next week.

Warren Buffett says the US isn't broken: 'America's economic magic remains alive and well'. Photo / AP
Warren Buffett says the US isn't broken: 'America's economic magic remains alive and well'. Photo / AP

Buffett gets political

In a US election year, it didn't take long for Warren Buffett's annual shareholder letter to get political. Politics entered the fray on the seventh page, right after the Oracle of Omaha had finished summing up developments in his New York-listed investment conglomerate, Berkshire Hathaway.

Ever the optimist, Buffett isn't buying presidential hopeful Donald Trump's line about the United States being broken. Far from it.

"It's an election year, and candidates can't stop speaking about our country's problems [which, of course, only they can solve]," Buffett wrote.

"As a result of this negative drumbeat, many Americans now believe that their children will not live as well as they themselves do." The investment sage, who endorsed Hillary Clinton in December, said that view was "dead wrong".

"The babies being born in America today are the luckiest crop in history."

He pointed out that US GDP per capita, at around US$56,000, was - in real terms - about six times what it was in 1930, the year of his birth.

"US citizens are not intrinsically more intelligent today, nor do they work harder than did Americans in 1930," Buffet said.

"Rather, they work far more efficiently and thereby produce far more. This all-powerful trend is certain to continue: America's economic magic remains alive and well."

- NZ Herald

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The Business Herald’s markets and banking reporter.

A business journalist for more than four years, he also writes the weekly Stock Takes column.Christopher’s main focus is the local sharemarket and issues facing Kiwi investors. He covered manufacturing and retail in his previous Herald role and maintains a special interest in New Zealand’s growing trade relationship with China.

Read more by Christopher Adams

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