“Growing pressure” on government to open borders sooner than expected

The political backdrop will become “increasingly problematic” for the government as the rest of the world opens up and accepts Covid-19 as an endemic virus, analysts at financial services firm Forsyth Barr said.

In a new research note examining the outlook for Air New Zealand, Forsyth Barr chief researcher Andy Bowley and analyst Matt Noland say it is increasingly unlikely that the government will be able to maintain its parameters border crossings over the next summer, as most OECD countries will have eased. border restrictions by then and New Zealand’s immunization level is expected to be at comparable levels.

“So we wouldn’t be surprised if he advanced his reopening schedule like Australia has done.”

On those vaccination levels, analysts have calculated the numbers and estimate that the best New Zealand will get is around 73% of its vaccinated population.

As for Air New Zealand, they see a loss for the current year of “no worse” than just over $ 700 million and actually choose-$ 697 million. They say Air New Zealand shares are overvalued and have lowered their “target price” for the next 12 months by 10 cents a share to $ 1.15.

Bowley and Noland say that without high levels of vaccination or a fully linked and controlled number of cases, Auckland seems unlikely to return to Alert Level 2.

“We can neither see Auckland venturing downward in alert levels over the next few weeks nor the Auckland border opening if it did. As has already happened in Waikato, there is It is highly likely that other parts of New Zealand will join the outbreak and be subject to further restrictions. Indeed, New Zealand is now heading into its final stage of Covid-19. “

They don’t see air restrictions around Auckland eased until the end of November.

They say they expect the government to ease restrictions around this time in light of the timing of its vaccination passport being released and allow enough time for the unvaccinated to get vaccinated, as well as before Christmas.

They see no chance of the Trans-Tasman bubble resuming this year, but travel to / from Australia will likely resume in early January 2022 on a restricted basis “as New Zealand begins the process of reopening its borders.”

“Australia’s decision to reopen its borders in mid-November will pressure our government to advance its timetable for reopening the borders.”

According to analyst figures, an 80% vaccination level may not be possible in New Zealand.

“In fact, the own government [about] The goal of 90% of the eligible population (4.3 million people) implies a [about] 76% total vaccination rate (5.1 million people). “

In the middle of last week, when the research report was written, Bowley and Noland said New Zealand was 41% fully vaccinated with an additional 25% of the population waiting for a second dose.

They calculated New Zealand’s likely vaccination rates based on what happened in other countries, in terms of timing.

“Our modeling of the vaccination schedule suggests that New Zealand’s vaccinations will hit [about] 73% of the total population as of December 31, 2021 (or [about] 88% of the eligible population), when ‘booster’ injections may be needed for those who were vaccinated for the first time in early 2021. “

As for Air New Zealand, Bowley and Noland say its home network is operating “considerably lower” than pre-Covid-19 capacity, given its usual reliance on Auckland.

They say losses are escalating as the current Covid-19 outbreak “has a significant impact on his ability to fly.”

“Despite larger losses and accelerated cash consumption, we don’t expect the latter to be a problem until the capital increase is postponed again.”

The estimate is that Air NZ will need to raise around $ 1 billion. This lift has been delayed twice and is is now expected to occur in the first quarter of next year.

“Reduced capacity will remain a feature for the foreseeable future, as we believe Auckland’s domestic aviation restrictions will be in place until the end of November, and the risk of other regions reverting to alert level. 3 has increased in recent days. “

They say Air NZ’s “cash burn and decline in equity” will continue throughout FY22 and FY23.

“Even after placing a value on the AIR loyalty program (which we do in our price target), it is difficult to justify a remote valuation close to its current price. While we recognize that the reopening of sentiment may help AIR’s share price in the short term, we continue to base our views on fundamentals.

They say their revised FY22 pre-tax loss is – NZ $ 697 million and compares to the current market consensus of – NZ $ 549 million.

“This results in a further decline in our net asset value (NAV) per share at the end of the year. [about] -8cps to [about] NZ $ 0.54. Despite significant percentage changes, our profit guidance for fiscal year 23 and beyond in dollars is largely unchanged. We continue to believe that [Air NZ’s] profitability will not return to pre-Covid-19 levels during our forecast period. “

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