Initiated position in July 2013.
What do you like about it?
We like a number of things about Auckland International Airport (ASX Code: AIA). First, it is a concentrated portfolio of a monopoly, 24 hr airfield in Auckland (~74% of all international visitors arrive/depart here) as well as three, 25% stakes in Queenstown (NZ), Cairns and Mackay airports. Approximately half the group’s revenues (aeronautical charges) are subject to regulator influence, with the balance being revenues from retail, carparking and property development activities.
Second, AIA owns the Auckland airport freehold, and within the 1,500 ha title there is ample scope for ongoing commercial/industrial developments.
Third, Auckland airport continues to enjoy exceptional passenger growth numbers (Compound Annual Growth Rate of 4.7% since 2000) with services from Asia the obvious growth avenue for the group. Management has advised that FY14 passenger growth to 25 August is up 7.9%.
How is it better than its competitors?
Effectively, it has no competitors. Auckland is the nation’s predominant gateway and regional Queensland cities of Mackay and Cairns only have one airfield, which aims to capture holiday/business travel to these regions. There is zero risk of new entrants.
What do you like about its management?
The senior management team is high energy and well regarded. The CEO comes with a strong retail/commercial pedigree from Telecom NZ. There is a clear ‘sweat the assets’ culture within the group, and we would expect productivity dividends to feature going forward.
What is your target price?
We don’t set price targets, preferring our investment process to reflect relative valuation metrics. We have been a recent accumulator of stock.
At what point would you sell it?
When our process suggests there are better relative value investment candidates. That’s unlikely in the short term.
How much has it added to your overall portfolio over the last 12 months?
The stock has rallied since purchase, and has given us a 15.8% return, including dividends, since purchase.
Is it a liquid stock?
AIA is very liquid with turnover value at $233 million on a 6-month rolling basis. It will shortly be added to the ASX300 index.
Where do you see the value?
Despite its solid share price performance to date, we see the strong likelihood of continuing share price appreciation as inbound travel, chiefly from Asia, swells and the group’s assets are leveraged to maximise returns.
Eley Griffiths Group Pty Limited (‘EGG’) is a boutique fund manager specialising in Australian small companies. It is jointly owned by Brian Eley and Ben Griffiths, former small companies’ portfolio managers at BT Funds Management and ING Investment Management.
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