Warning over Air NZ share price

Air New Zealand shares are more than 100 per cent overvalued, says one of the country’s largest share brokerage firms.

In an update to the New Zealand stock exchange (NZX) yesterday, Air NZ said it was expecting a loss of up to $120 million for its 2020 financial year.

The announcement came days after the release of a report by Forsyth Barr analysts Andy Bowley and Scott Anderson which said

Air NZ cash losses and asset impairments would materially deplete its net asset value as at June 30, 2020, and likely further to June 30, 2021.

Forsyth Barr reduced its target price per share for Air NZ to 70 cents, down from $1, to reflect heavier losses in the 2021 financial year than previously anticipated.

Air NZ shares are currently trading at around $1.65, about 135 per cent more than Forsyth Barr’s target.

Forsyth Barr acknowledged a wide margin for error concerning its forecast given the range of possible operating outcomes over the next 12 months.

In its NZX statement the airline said that it had suspended earlier guidance ‘‘due to the significant uncertainty surrounding the duration, scale and impact of the Covid-19 pandemic’’.

The airline is slowly restarting its domestic network, but says revenue and earnings for the 2020 year will be ‘‘significantly lower than expected’’ prior to the outbreak of Covid-19.

Bowley and Anderson said ongoing cash losses, while narrowing, would continue for Air NZ into the 2021 financial year meaning its cash liquidity position would continue to fall.

‘‘Management suggests that it will need to access the Government’s $900m debt facility over the coming months. This may not be necessary if it undertakes an equity recapitalisation,’’ they said.

They said Air New Zealand needed recapitalisation (an equity injection) to allow it to achieve its 800-day ‘‘survive, revive and thrive’’ plan.

They expected Air New Zealand to be loss making in the 2021 and 2022 financial years.

‘‘Assuming profits resume in FY23 [financial year 2023], the company may then resume its dividends.’’

Air New Zealand has said it would be a smaller airline as a result of Covid-19, reducing in size by about 30 per cent.

Bowley and Anderson said they believed it could be profitable at this size.

Forsyth Barr reduced its target price per share for Air NZ to 70 cents, down from $1.