Huntleys' Stock of the Week

Recommendations: Reduce

WBC's current stock prices

Subdued FY09, why sell Melbourne?

Investment Rating:

AIX is a diversified stapled infrastructure fund, mainly investing in Australian and European airports. Competitive advantages include owning long-life airports which offer fairly resilient earnings from GDP - plus passenger growth, steady airline fee increases, parking and shopping leases, and property. AIX pays relatively modest management fees plus a possible performance fee to its responsible entity Hastings, which is wholly owned by Westpac. Earnings are derived from distributions and asset revaluations, which have been buoyed by generally strong passenger growth and historically low bond rates. Investors need to be comfortable with continuing debt refinancing and asset revaluations, now under an overdue cloud. Aided by long-life assets, prudent management and sound investor relations, AIX is well suited for income portfolios. Distributions are both moderately tax deferred and franked. AIX has the challenge to grow organically.

The Result:

($m) Year to June 30	FY08	FY09	% Change
Revenue	246.2	116.4	-52.7
EBITDA	230.5	106.5	-53.8
Pre-Tax Profit	222.9	95.3	-57.2
NPAT Adjusted	206.5	100.6	-51.3
Net Op. Cash Flow	36.8	28.7	-22.1
EBITDA Margin	93.6	91.5	-2.2
EPS Adjusted	54.6	26.3	-51.8
DPU	16.5	13.0	-21.2

Result Description:

• Key item was FY09 DPU slumping 21% to a disappointing 13c as flagged previously. The lowly final 5c was paid on 31 August. Australian airport passenger volumes were fairly resilient, unlike woeful Europe. Proportionately-consolidated NPAT fell 14% to $66m and EPS fell 14% to 17c.

• Lower cash flow just about covered the lower DPU.

Impact:

• Weighted average debt maturity is fairly short at 3.5 years, with hefty debt refinancing in CY10. The net $212m received post balance date repaid all $123m of corporate net debt.

• Key short-term drivers include the Melbourne sale outcome and how AIX uses any proceeds. Most likely AIX will help refinance Perth or possibly buy out the unlisted other Hastings funds rather than return capital.

• Forecast cash flow per share will only allow around 10c DPU after the high dilution.

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