AFIC Portfolio Manager Brett McNeill recently visited New Zealand to attend meetings and site tours with a range of companies, including Auckland Airport. We also met with a number of companies and analysts to form a view on the performance and outlook for the New Zealand economy. Here we share some of the key takeaways.
The New Zealand economy appears to be in reasonable shape with borrowers in a solid position despite record interest rate increases, although businesses appear cautious.
Auckland Airport aligns well with AFIC’s investment philosophy – a high-quality infrastructure company that owns irreplaceable assets, has attractive long-term growth prospects, maintains a strong balance sheet, and is well managed.
The company owns a highly unique and strategic asset in Auckland Airport, along with a smaller asset, Queenstown Airport, both of which have the capacity for long-term growth. Auckland Airport also has a large, undeveloped land bank, setting it apart from other infrastructure assets.
Auckland Airport demonstrated outstanding operational and financial performance over the 10 years to 2019 (pre-COVID), marked by robust growth in international passenger numbers that contributed to increased revenues. Post-COVID, the passenger recovery has been strong, with monthly traffic running at 90 per cent of pre-COVID levels for domestic passengers and 80 per cent for international passengers. A full recovery is anticipated by approximately 2025.
The company has an extensive investment program planned for the next 10 years, with a very strong five-year outlook for its property portfolio. The robust financial position enables it to comfortably finance short-term capital expenditure through debt, given the strength of its balance sheet.
Among the key projects include the integration of a new domestic terminal with international facilities, implementation of a high-tech baggage system, development of a transport hub, and expansion of the to accommodate room for larger aircraft. These projects possess the potential to generate strong earnings growth over the next decade.
Auckland Airport presents an attractive opportunity, underlining our confidence in Auckland Airport’s robust position and expectations that long-term returns will reflect the quality of the asset.