Key points
- Auckland International Airport (AIA) holds freehold title over their site, which includes significant contiguous land holdings, versus Sydney Airport that leases land through a Federal Government concession.
- AIA has released a 30-year plan that sees a second runway and projects annual passenger numbers of 40 million, up from today’s 15 million.
- Over time, AIA has managed its capital base very prudently, returning capital to shareholders when investment opportunities to accelerate growth do not present themselves.
How long have you held the Auckland International Airport (AIA)?
We started accumulating our position in July 2013 at around $2.50-$2.60. We have since used periods of price weakness to add to our position, such as the months into September 2014. Occasionally, we have taken advantage of over-zealous trading activity to take profits too.
What do you like about it?
Auckland International Airport’s (AIA) chief asset is the Auckland airport with smaller investments held in Queenstown, Cairns and McKay airports. Over 70% of visitors enter or leave New Zealand via Auckland airport, which handles over 15 million passengers a year.
AIA holds freehold title over their site, which includes significant contiguous land holdings versus Sydney Airport that leases land through a Federal Government concession. This gives investors an attractive dual exposure to the long-term growth in the airport business (blend of aeronautical, retail, hotel and car parking revenues) and a commercial property management and development business, which boasts a 308 hectare land bank.
This business combination has seen AIA deliver very consistent earnings growth over the last decade yet the business remains relatively unknown amongst the Australian investment community and trades at a 10% discount to Sydney Airport on forecast earnings.
AIA has released a 30-year plan that sees a second runway and projects annual passenger numbers of 40 million, up from today’s 15 million. This is predicated on rising middle class wealth in Asia (GDP per capita), airline capacity growth (aircraft size, frequency, routes to Auckland) and the growing NZ tourism profile.
Over time, AIA has managed its capital base very prudently, returning capital to shareholders when investment opportunities to accelerate growth do not present themselves. We believe AIA can deliver 4 to 6% revenue growth per annum, which should leverage through the profit and loss to deliver 8 to 10% compound annual growth in earnings. The stock is a core holding across Eley Griffiths Group portfolios.
How is it better than its competitors?
Being the sole provider of international aircraft access to Auckland, the county’s principal city, AIA simply doesn’t have a competitor. Regionally, it dwarfs Wellington, Christchurch and Queenstown. It offers greater efficiencies over Australian airfields as a transit point, with its surfeit of land, zero curfew and expanding provision of commercial services within close proximity of the airport precinct.
Additionally, Auckland airport’s retail and car parking formulae and aeronautical pricing are yet to be fully optimised, offering upside to owners.
The company’s capex program will be staged and carefully controlled, versus the looming ‘big-bang’ facing Sydney Airport if it opts to be involved in the Badgerys Creek second airport project.
What is your target price?
We do not set target prices but our internal investment process indicates the stock to be attractive at current valuations.
How has the stock performed for you?
The stock has performed well since our initial buying campaign in mid 2013 [1]. We have carefully added to our position along the way, as our comfort with the business model and macroeconomic environment grew and market corrections provided buying levels. Our average entry price sits at about $3.43.
Is it a liquid stock?
AIA is capitalised at $5.5 billion and is tradeable on both the ASX and NZX.
Auckland International Airport
[2]Source: Yahoo!7 Finance, 18 June 2015
Ben Griffiths is co-founder and fund manager at Eley Griffiths Group.
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