Queenstown Airport: AIA purchase good Long-Term but to cost shareholders Short-Term

I wasn't going to comment on the purchase by Auckland International Airport Ltd [AIA.NZ] of nearly 25% of Queenstown International Airport last week until I read about the opposition to the purchase by Queenstown big noters this morning and it put it back on the raydar again.

Unlike the dubious merits of buying run down Australian Airport assets earlier this year, I see the Queenstown purchase as providing some long term benefit to AIA shareholders.

While I see little reason that there will be significant extra visitors to Auckland Airport as a result of the purchase, as AIA management do, I do see good growth in visitor numbers direct to Queenstown (why fly to Auckland to go to Queenstown?).

Direct flights to Queenstown will propel growth of that airport, in percentage growth terms, higher than that of AIA and that alone is a good reason to make the buy and increase their stake further to 35% as the purchase agreement allows.

The only negative part to this is the price paid. Does it add value to AIA shareholders by giving us a return after financing costs or does that return come for us on a longer term basis when that growth is achieved?

If you look at the latest results posted for Queenstown Airport, in 2009 revenue was $11.3 million, up 5.2%, with a profit of $1.65 million, up 42.3% on 2008. AIA's cut of that is $410,000.00. At a purchase price of $27.7 million, with financing costs of a modest 5% (the actual will be higher) the cost to borrow the money is $1.38 million, leaving AIA shareholders in the hole approximately $970,000.00 per annum.

It seems modus operandi for AIA to pay over market price for assets but at least this is a quality asset with good long term benefits for shareholders.


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Auckland International Airport @ Share Investor

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c Share Investor 2010

Thornton Report: Allan Hubbard's Aorangi Securities

I am not sure why Grant Thornton, the Statutory Manager of Allan Hubbard's Aorangi Securities, would be publicly releasing an interim report on Hubbard's company unless it provided a clear picture of what has been going on. It doesn't.

Best a complete investigation be done then publicly comment. Thornton's accusations have yet to be backed up by fact and while there maybe a basis for this investigation, parading it in the media before crossing the "I's" and dotting the "T's" isn't a wise move. Hubbards other business interests have and will be further affected by these claims

Having said that there are some serious issues that Mr Hubbard needs to address if true:

These are the main points Thornton has made:

1. Inter-party lending seems to have been rife with interest free loans flowing from charitable trusts to Hubbard business interests.

2. Security on some loans, while promised, seems to be missing in some cases.

3. Inadequate accounting systems


Many commentators have been calling for Mr Hubbard's neck in a noose over this but so far I haven't seen anything that would require he be run out of town. Not yet anyway.

Best they shut their mouths until the final report and any evidence is revealed.


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c Share Investor 2010

Back to The Future: Wall Street 2010 VS 1931

I was thinking yesterday how the markets seem to be mirroring what happened after the October 1929 Wall Street Crash, that is, they crashed then recovered sharply, only to take further dips during the 1930s and actually falling more after the big 1929 fall.

I am not sure whether we are going to see another big fall in markets but there is little positive economic news on the horizon and huge State debt levels ready to make their impact somewhere down the line so there is clearly going to be more stockmarket downside in the coming year.

What I was thinking was someone must have charted any similarities between the DOW circa 1929 - to the early 1930s and the present day DOW and I am discovering as I find the charts whether my thinking has any merit, just as you are now.

A 5 year chart of the DOW from 1928, a year before the 1929 crash (1928 - 1933)




A 5 year chart of the DOW from 2005, 3 years before the 2008 crash (2005-2010)





Notice the big increase in stock prices from both eras after their respective crashes then also notice the further decline after that rally (the 2009 - 2010 stock recovery was much higher than the depression era) and the DOW has taken that dip over the last few months before another rise over the last week or so. Once again a similar pattern emerged circa DOW depression era.

I certainly don't know whether the DOW is going to repeat its 1930s pattern but as I have already pointed out economic conditions are not good and there is all that debt out there.

If you were a betting man you would have to put your money on a rerun.


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c Share Investor 2010

Long Term View: Kirkcaldie & Stains Ltd

In this series of posts I am going to be looking at stocks listed on the NZX in relation to their returns to shareholders over the life of their listing -what shareholders would now see in their back pockets if they had invested in the company IPO. The calculation of returns includes dividends and tax credits.

Kirkcaldie & Stains Ltd [KRK.NZ] has been one of the worst performing stocks listed on the NZX. It may have performed better than that for the founders and its family tree since its establishment in 1863 though but investors who participated in the May 2001 IPO at NZ$5.00 per share will be disappointed. $1.015c in net dividends and 30% more in tax credits (see chart above) a 1:2 rights issue in 2002 and a 1:3 rights issue in 2003 gives KRK a minus 95% return (see chart below for the share price percentage gain against the average of all NZX indexes - does not include dividends, tax credits and the share split in its calculation) and over the nearly 10 year listing of KRK an approximate annual net return of minus 9.5%.

This is approximately a 150% worse return when compared to the average of all NZX indexes.




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c Share Investor 2010