Air New Zealand's profits have taken off but its dividends could take some time to rebound.
Tourist numbers are bouncing back and analysts expect NZ’s biggest tourism companies to announce plans to bring back dividend payouts in the coming weeks.
SkyCity has already declared an interim dividend and Auckland Airport, Tourism Holdings and Air New Zealand are expected to announce final dividends as part of their full-year results.
Jarden analysts Adrian Allbon, Arie Dekker and Christian Bell are forecasting SkyCity, Auckland Airport and Tourism Holdings to return to around 70 per cent of pre-Covid 2019 financial-year payouts by the 2024 financial year.
But they estimate that Air NZ, which is expected to make one of the fastest turnarounds in corporate history with its full-year profit — to reach a payout level of only about 26 per cent of its FY2019 dividend in 2024.
Allbon told Stock Takes the reason Air NZ is the laggard is because its large equity raising diluted the stock.
“And then they have got capex [capital expenditure] and their earnings are inherently more volatile so they have got a more conservative path.”
Air New Zealand is phasing out its Boeing 777s and bringing in new Dreamliners — plans that will help smooth the path of its new Auckland-New York route.
While it’s good news that all tourism stocks will be back to paying some level of dividends after a rough couple of years, it could be some time before those dividends return to what they were in pre-Covid times.
SkyCity is still embroiled in a legal spat over the sale of its car parks to Macquarie and will head to a two-day trial in September.
On top of that, it is facing a possible fine. Australian regulator Austrac is suing the casino operator for “serious noncompliance” with anti-money laundering laws and failing to monitor telltale signs of money laundering.
Allbon said analysts would be looking out for any provisioning for a possible fine in its financial accounts.
For Tourism Holdings, it will be its first full-year result since its merger with Apollo Tourism & Leisure. It has forecast underlying net profit after tax to be above $75 million.
The Jarden analysts said they would be interested to see whether THL could meet that guidance, with the company having warned of some risk to sales timing at its May investor day after a slow start to the Northern Hemisphere’s recreational resales season.
Allbon said the company needed to capture the synergies from the merger and also faced a strong fleet replacement programme which would require capital expenditure.
“We expect to see some increase in operating fleet base with the total fleet stalling through the first half of the financial year and THL finishing at 6.4k vehicles at 1H23 versus our 10k steady-state estimate for FY26.”
Auckland Airport also faces a huge capital expenditure programme which will likely delay how long it takes for its dividend to return to pre-Covid levels.
The airport has told the market it will spend $2.5 billion on capital works by 2027 and at least $5.9b in total by 2032, resulting in a material step-up in its aeronautical prices.
“There is no hiding from the fact Auckland Airport has got a huge capex programme in front of them,” Allbon said.
It has already signalled that its payout ratio will reduce to 70-90 per cent of underlying NPAT from its prior 100 per cent policy.
Allbon said the company had also raised the prospect of requiring further equity funding.
Allbon said investors looking for dividend growth would do well to look to Spark, Chorus, Vector and the electricity generators.
While the interest rate environment has moved considerably in the last year with term deposits now touching 6 per cent, Allbon said the one thing a term deposit doesn’t give you is growth in the dividend.
“One of the interesting things that we found when we looked back through the numbers is the dividend growth rates of all of these companies is lifting quite nicely.
“Chorus is about to embark on a steep uplift of its dividend, Vector is coming back into dividend growth after having no growth for some time. That meter sale was super important for unlocking some balance sheet capacity rolling forward onto a higher risk-free rate set.”
Allbon said the electricity generators had all had really positive results.
“That should flow through to dividends with the exception of Contact which is — that’s more of a policy setting — they have got this big Tahara project they are still completing.”
Two stocks which will be closely watched this reporting season are a2 and Ebos.
Allbon said a2 Milk was a growth turnaround investment case in a shrinking end market.
“Their investment case is they need to keep taking market share in a smaller and smaller market. That’s difficult to calibrate.”
Allbon also pointed to the challenge of its re-registered Chinese licence.
“That’s over 50 per cent of their volume now but they need to change those labels over in the next six months as well.”
He said analysts would be closely looking at how the company sees its prospects for the year ahead.
Ebos doesn’t typically provide much forward-looking guidance. However, it is facing a major change with the future loss of its Chemist Warehouse contract.
“I think people will genuinely have some interest in what they say about that. That’s a meaningful rebuild of quite a large amount of revenue and activity for them to do. They have got time — they have still got another year of the contract.”
NZX-listed Scott Technology has signed a $12 million deal to supply McCain Foods, the world’s largest manufacturer of frozen potato products, with an automated materials handling system for its Alberta, Canada, facility.
“This new contract is recognition of our expertise in this area, as well as a reflection of our strategy of partnering with companies that have a large global presence,” Scott chief executive John Kippenberger said.
The solution combines multiple production lines to a common palletising system for cases of frozen French fries and has been designed to handle McCain’s production capacity of 130 cases per minute.
The system will be built in Scott’s European materials handling centre, for delivery late next year.
Scott’s 53 per cent owner — Brazil’s JBS — has put its capital structure under review.
Kippenberger was not giving much away about Scott’s future structure when he spoke to Stock Takes. “The strategic review is continuing,” he said. “We will update the market as and when appropriate.”
McCain is one of Scott’s long-standing customers. Its technology can be found in McCain’s facilities in Belgium, France, the Netherlands and Poland.
Of the Alberta deal, Kippenberger said: “Strategically it’s important for Scott to establish a footprint in North America and McCain is a really good place to do it.
“We are seeing good demand for automation from large companies where we have long-standing relationships across most of our core sectors,” he said.
“Automation is certainly top of mind for a lot of these food and beverage processors.”
- Additional reporting Jamie Gray.
Tamsyn Parker is the Business Editor. She joined the Herald in 2006 as a business reporter and has covered tourism, manufacturing, capital markets and personal finance. She became the Business Editor in April.
A large number of young Kiwis are leaving for Australia, although the rate may have peaked