Auckland Airport grows

We like airports because they are effectively three investments in one. First, a highly regulated income stream from landing charges, cargo fees and passenger charges - not high growth, but regular as clockwork. Second, airports incorporate shopping centres, with a captive audience and a near-monopoly position and rental payments to match. The last piece of the puzzle are extensive tracts of property which can be redeveloped and sold or leased to hotels, cargo businesses, airline caterers and so forth. An airport is like a toll road, a retail property trust and a property developer all in one.

This position is reinforced by Auckland International Airport's results for the year to June 2000. Revenue increased 6% to $137.09m, which translated into net profits of $41.2m, up 20.4% on the year before. At the same time the company reduced its interest bill by 5.4% and boosted earnings per share by 11.9% to 9.8 cents. Shareholders received a dividend of 12.3 cents, which is equivalent to a yield of 4.5% (remember, though, dividends from AIA are unfranked).

Steadily growing

The core of Auckland Airport's business is steadily growing traffic. In the 2000 financial year, passenger numbers grew 4.4%, aircraft movements rose 5.5% and cargo tonnage crept up 2.9%. Auckland International Airport cannot fully exploit its monopoly position, because its charges are regulated, but even so, it can increase them to some degree. To fund a capital expenditure program over the next few years, for example, AIA announced in August that it was planning to increase its landing fees by 8.5% in September 2000, then 5% in September 2001 and a further 5% in September 2002. How many businesses do you know of where you can pass on costs to customers so easily?

Auckland Airport's competitive position and reliable earnings make it a strong addition to a defensive portfolio – its share price will grow through the years, as will its dividend stream. We see the stock as one to ACCUMULATE, but if its price slips below $2.50 you can buy with alacrity.