Huntleys' Stock of the Week

Recommendations: Take up Rights

AIX's current stock prices

DPU cut with large rights issue, but HDF upside

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 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 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.

Event:

• AIX is making a 1-for-2 rights issue at $1.10, fully underwritten but non-renounceable. It raises a net $203m, about 50% each from institutions and retail. Record date is 23 June. Institutions already subscribed for $106m gross. The retail offer is from 26 June to 10 July.

• AIX also declared an estimated final FY09 DPU of 5c, payable around 31 August. Guidance for the FY10 DPU is for just 10c. Henceforth, DPU will match operating cash flow and dividend payments.

• AIX's airport passenger traffic this half remains weak.

Impact:

• The $203m raised will repay the $160m short-term debt maturing this December. The balance will largely meet both debt and equity calls from the underlying airports.

• AIX only turns around 30% of its proportionately consolidated EBITDA into cash available for distributions. Hence the lower DPU outlook.

• HDF's price re-rated only after another corporate recognised the underlying infrastructure asset's value.

• Unless AIX receives an amazing offer, probably not from MAP, it would be hard to replace Melbourne.

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