KEY POINTS:
Broking firm ABN Amro Craigs has taken a political stand on the upcoming board elections for Auckland International Airport - throwing its weight behind Infratil chief Lloyd Morrison's bid to become a director.
In a research note to investors, analyst Cameron Watson also recommends that shareholders don't sell
to the Canadian Pension Plan Investment Board (CPPIB) offer for a 40 per cent stake in the airport, despite the fact the Canadians have yet to release details of their offer.
The views of the Tauranga-based firm - which are at odds with the research reports from other investment banks in the past week - could play a big role in what is shaping up to be a tight race for control of Auckland Airport.
The company holds stock equivalent to a 10 per cent stake in the airport on behalf of a wide range of investors.
Although most of those investors will still cast their own votes on the issue, it is understood shareholders representing a stake of about 2.5 per cent will allow the company to vote for them by proxy.
As well as the research note, ABN Amro Craigs has contacted airport shareholders to remind them to vote in the election and make the case for Morrison.
In support of Morrison, the note highlights his track record with companies like Port of Tauranga, Trustpower and Wellington Airport.
The Infratil chief said last week that he would seek to bring in a cornerstone shareholder with a non-controlling stake of 25-30 per cent if he were elected.
Watson's research note gives the stock a target price of $3.80 - compared with yesterday's close of $3.07.
CPPIB has offered $3.6555 for a 40 per cent stake in the airport. The offer is the first part of a two-part transaction. CPPIB has said it wants to press ahead with an amalgamation and capital restructuring at the airport to unlock more value for shareholders.
Details of how the amalgamation will work and what sort of value could be unlocked are still to be released but are likely to be available to shareholders in time for the annual meeting next Tuesday.
The CPPIB team declined to comment on the note yesterday other than to reiterate that "the full details of the offer were yet to be outlined and would be as soon as is practical".
Watson yesterday conceded the recommendation was highly unusual one for a research analyst to make.
"It is a rare step for us to go this far. But it's a pretty rare asset."
He argues that investors need to take a long-term view in assessing the value of the airport.
Watson highlights the performance of airport stock on the NZX since it listed in July 1998. An investment of $1000 at that time would now be worth $7000 - assuming net dividends were reinvested. That's a return of about 23 per cent a year.
He argues the offer price is at just 66c, or 21 per cent, above ABN's discounted cashflow valuation.
It did "not adequately compensate for exiting such a strategic asset with such a compelling long-term growth profile".
Watson has a target price of $3.80 on the stock - higher than that given by research analysts at other broking firms.
Citi Investment Research has a target price of just $2.70 on the stock, when all corporate activity is removed from the equation.
At Goldman Sachs JBWere, analyst Marcus Curley recommends investors sell now because of the risk that the CPPIB offer might fail. He has a target price of $3.05 on the stock.
At Macquarie Equities, Warren Doak has a target price of $2.85 on the stock. "We would expect shareholders to await further details, including an independent valuation and the directors' recommendation," he writes.
A disclosure on the research by ABN Amro Craigs indicates the firm was recently appointed as organising participant to the Infratil rights issue.
Watson stressed that the firm operated strict "Chinese walls" between its research and investment banking divisions, as is normal for the industry.
"Our view has our clients at heart, nothing else."
Target prices
What firms think Auckland Airport shares will be worth in 12 months:
ABN Amro Craigs: $3.80
Citigroup: $2.70
Macquarie Equities: $2.85
Goldman Sachs JBWere: $3.05
Yesterday's close: $3.07