Is Auckland International Airport Limited (NZSE:AIA) Worth NZ$7.5 Based On Its Intrinsic Value?

Simply Wall St.
07-10
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Key Insights

  • Using the 2 Stage Free Cash Flow to Equity, Auckland International Airport fair value estimate is NZ$5.74
  • Auckland International Airport is estimated to be 31% overvalued based on current share price of NZ$7.50
  • The NZ$8.26 analyst price target for AIA is 44% more than our estimate of fair value

Today we'll do a simple run through of a valuation method used to estimate the attractiveness of Auckland International Airport Limited (NZSE:AIA) as an investment opportunity by projecting its future cash flows and then discounting them to today's value. Our analysis will employ the Discounted Cash Flow (DCF) model. Models like these may appear beyond the comprehension of a lay person, but they're fairly easy to follow.

We generally believe that a company's value is the present value of all of the cash it will generate in the future. However, a DCF is just one valuation metric among many, and it is not without flaws. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model.

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The Method

We're using the 2-stage growth model, which simply means we take in account two stages of company's growth. In the initial period the company may have a higher growth rate and the second stage is usually assumed to have a stable growth rate. In the first stage we need to estimate the cash flows to the business over the next ten years. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.

A DCF is all about the idea that a dollar in the future is less valuable than a dollar today, so we discount the value of these future cash flows to their estimated value in today's dollars:

10-year free cash flow (FCF) forecast

2026202720282029203020312032203320342035
Levered FCF (NZ$, Millions) -NZ$822.2m-NZ$859.0m-NZ$541.6m-NZ$99.3mNZ$232.2mNZ$373.9mNZ$537.5mNZ$707.5mNZ$871.3mNZ$1.02b
Growth Rate Estimate SourceAnalyst x4Analyst x3Analyst x3Analyst x2Analyst x2Est @ 61.06%Est @ 43.75%Est @ 31.63%Est @ 23.15%Est @ 17.21%
Present Value (NZ$, Millions) Discounted @ 8.3% -NZ$759-NZ$733-NZ$427-NZ$72.3NZ$156NZ$232NZ$308NZ$375NZ$426NZ$462

("Est" = FCF growth rate estimated by Simply Wall St)Present Value of 10-year Cash Flow (PVCF) = -NZ$32m

We now need to calculate the Terminal Value, which accounts for all the future cash flows after this ten year period. For a number of reasons a very conservative growth rate is used that cannot exceed that of a country's GDP growth. In this case we have used the 5-year average of the 10-year government bond yield (3.4%) to estimate future growth. In the same way as with the 10-year 'growth' period, we discount future cash flows to today's value, using a cost of equity of 8.3%.

Terminal Value (TV)= FCF2035 × (1 + g) ÷ (r – g) = NZ$1.0b× (1 + 3.4%) ÷ (8.3%– 3.4%) = NZ$22b

Present Value of Terminal Value (PVTV)= TV / (1 + r)10= NZ$22b÷ ( 1 + 8.3%)10= NZ$9.7b

The total value is the sum of cash flows for the next ten years plus the discounted terminal value, which results in the Total Equity Value, which in this case is NZ$9.7b. In the final step we divide the equity value by the number of shares outstanding. Compared to the current share price of NZ$7.5, the company appears reasonably expensive at the time of writing. The assumptions in any calculation have a big impact on the valuation, so it is better to view this as a rough estimate, not precise down to the last cent.

NZSE:AIA Discounted Cash Flow July 9th 2025

The Assumptions

Now the most important inputs to a discounted cash flow are the discount rate, and of course, the actual cash flows. You don't have to agree with these inputs, I recommend redoing the calculations yourself and playing with them. The DCF also does not consider the possible cyclicality of an industry, or a company's future capital requirements, so it does not give a full picture of a company's potential performance. Given that we are looking at Auckland International Airport as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt. In this calculation we've used 8.3%, which is based on a levered beta of 1.133. Beta is a measure of a stock's volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business.

See our latest analysis for Auckland International Airport

SWOT Analysis for Auckland International Airport

Strength
  • Debt is well covered by earnings.
    Balance sheet summary for AIA.
Weakness
  • Earnings declined over the past year.
  • Dividend is low compared to the top 25% of dividend payers in the Infrastructure market.
  • Expensive based on P/S ratio and estimated fair value.
Opportunity
  • Annual revenue is forecast to grow faster than the New Zealander market.
Threat
  • Debt is not well covered by operating cash flow.
  • Annual earnings are forecast to grow slower than the New Zealander market.
    Is AIA well equipped to handle threats?

Next Steps:

Although the valuation of a company is important, it is only one of many factors that you need to assess for a company. DCF models are not the be-all and end-all of investment valuation. Rather it should be seen as a guide to "what assumptions need to be true for this stock to be under/overvalued?" For example, changes in the company's cost of equity or the risk free rate can significantly impact the valuation. What is the reason for the share price exceeding the intrinsic value? For Auckland International Airport, we've put together three pertinent elements you should further research:

  1. Risks: Be aware that Auckland International Airport is showing 1 warning sign in our investment analysis , you should know about...
  2. Future Earnings: How does AIA's growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our free analyst growth expectation chart.
  3. Other Solid Businesses: Low debt, high returns on equity and good past performance are fundamental to a strong business. Why not explore our interactive list of stocks with solid business fundamentals to see if there are other companies you may not have considered!

PS. The Simply Wall St app conducts a discounted cash flow valuation for every stock on the NZSE every day. If you want to find the calculation for other stocks just search here.

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Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

免責聲明:投資有風險,本文並非投資建議,以上內容不應被視為任何金融產品的購買或出售要約、建議或邀請,作者或其他用戶的任何相關討論、評論或帖子也不應被視為此類內容。本文僅供一般參考,不考慮您的個人投資目標、財務狀況或需求。TTM對信息的準確性和完整性不承擔任何責任或保證,投資者應自行研究並在投資前尋求專業建議。

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