First NZ Capital cut its 12-month target price on Auckland International Airport on concern the company's major capital project to cope with growing demand will limit returns from the transport hub's regulated asset base.
The brokerage lowered its price target to $5.10 from $5.20, while keeping the 'underperform' rating as the stock trades at a "significant premium" to its assessment of fundamental value, it said in a report. Auckland Airport shares fell 0.4 per cent at $7.17, having gained 15 per cent so far this year.
On Thursday, the airport operator announced a new aeronautical price schedule for the next five years along with a planned $1.8 billion infrastructure spend in the FY18 to FY22 period. It also announced a new runway land charge from FY21 to offset the cost of building a new runway by 2028.
The pricing schedule will see international passenger charges reduce by 1.7 per cent in real terms each year while domestic passenger charges will increase by 0.8 per cent per annum. "We believe that AIA and key stakeholders have negotiated an outcome that targets a reasonable rather than an excessive return on capital," First NZ Capital said.
However, the brokerage lowered the target price as "the disclosure did highlight a significant increase in the level of work-in-progress capital and longer lead times in the transfer of that capital to the regulated asset base," First NZ Capital said. This "effectively equates to an increase in the level of capital that AIA funds for which it is not earning a return."
