Infratil turns its focus on energy sectors

Infratil is expected to draw a line under its fraught foray into the European airport market and possibly New Zealand Bus business as it refocuses on Australasian energy sectors and lines up to buy Shell New Zealand.

First NZ Capital head of research Rob Bode said New Zealand Bus had been a frustrating investment but was generating a pretty good return.

Given that Infratil had made it clear it did not want to raise new equity to fund its share of buying Shell in New Zealand, and wanted to keep debt levels down, everything but the core assets of Trustpower, Wellington Airport and Infratil Energy Australia "could be considered to be sold", he said.

NZ Bus is the biggest provider of public bus services in Wellington and Auckland, and has a book value of $211.8m. Potential buyers could include Christchurch-based Ritchies Transport or big Australian operators Transdev-TSL, Veolia Transport and Swan Transit, all of which have previously indicated an interest in entering the New Zealand bus market.

Wellington-based Infratil is poised to buy service station operator Shell New Zealand and its associated assets early next month, including a share in New Zealand Refining and a distribution pipeline. The Shell consortium would be a 50/50 joint venture between Infratil and the Superannuation Fund.

Infratil chief executive Marko Bogoievski signalled at a half-year result last week that the company would reallocate capital with further investment in energy over the next year. "The current financial markets demand a more active approach to managing the portfolio and recent transactions are more reflective of corporate finance considerations than a shift in the underlying approach to investment."

Analysts took that to mean Infratil's remaining European airports, Glasgow Prestwick and Kent, and possibly city bus operator New Zealand Bus are on the block for sale.

A buyer is also still being sought for one third-owned Energy Developments, after an offer by Pacific Equity Partners was rejected, but a quick sale is unlikely.

The value of the group of assets potentially for sale closely matches the approximately 30 per cent discount to net asset value that Infratil's shares are trading at. The shares ended last week at $1.50 a share. Since the September 30 balance date, Infratil realised a total $152m in cash from the sale of its 3.87 per cent share in Auckland International Airport at a huge loss, and sold a 90 per cent stake in Lubeck airport back to the City of Lubeck at a near break-even price.

Infratil says aggressive cost control reduced the European airports' losses in the six months to September on the same time last year, despite continuing weak demand.

"The European aviation market remains depressed with only tentative signs of recovery."

Combined passenger numbers were down by more than a third to just over 1m for the period while freight volumes rose 16 per cent.

Forsyth Barr head of research Rob Mercer said the airports had become "a really big distraction for the market" and led to a loss of investor confidence. The airports might not be easy to sell in the current depressed aviation market, "but I would be surprised if they (Infratil) are still owning it over the next 12 months," Mr Mercer said.

"The market would be relieved if the European airports were sold at around the current revised value."

The book value of the airports has been written down to $148.4m from $221.8m, partly due to the stronger New Zealand dollar and a $41.6 million write-down of its Glasgow Prestwick airport asset.

Infratil says it is pinning its hopes on history, which suggests that passenger air travel rebounds reasonably quickly as the economy improves and cheaper airline seats abound. "The intention now is to minimise costs and wait for a recovery in the aviation market."

Potentially complicating the picture further is the development of the high-speed train system in Europe. The Eurostar speeds between London and Paris in the time it takes to check-in for a flight at Heathrow. And Air France recently withdrew its Paris-to-Brussels service due to competition from a high-speed rail on the route.

Infratil bought its initial stake in Glasgow Prestwick in January 2001 before taking full ownership in March 2004 for a total investment of $85.3m. Glasgow Prestwick was considered a launching point for a bridge into Europe as the privatisation of secondary airports on the continent gathered pace and with the boom in budget airline growth.

Lubeck Airport, 65 kilometres from Hamburg was snapped up in 2005 complete with a large marquee as a terminal. Kent Airport near London was bought from administrators the following year with an empty arrivals and departure board in a refurbished terminal and a runway capable of handling Boeing 747s.

At the time, Infratil had its sights set on adding several more airport over the next few years. It was punting that these city fringe airports would benefit from the explosion in low-cost air travel, increased demand for freight and congestion at major hub airports like Heathrow London.

In the end none of the airports has performed to expectations, compounded by the global financial crisis which led to a massive downturn in the aviation industry.