Macairports Could Go A Cash-raising

Sydney Morning Herald

Tuesday September 28, 2004

Edited by Michael Evans

Why not, the share price has come good and Belgian airports don't come cheap.

With its share price holding at record highs, don't expect Macquarie Airports to be too shy about putting the hard word on punters, especially as its bid for Brussels airport gathers pace.

According to some back of the envelope numbers, Macquarie Airports could afford to invest up to $700 million as its share of any consortium bidding for Brussels, the final figure depending on the earnings multiple and its level of participation in the consortium.

The continued strong performance of its airports has prompted some analysts to tweak their valuations. UBS is said to have raised its price target to as high as $2.75 a share, from $2.60, and ABN Amro's valuation is now $2.85, making it easier to keep an "accumulate" recommendation on the stock even after its steep rise of the past few months.

Clearly, Sydney airport remains the best performer in the portfolio, with question marks still over aspects of Rome, where issues such as Alitalia's financial health and proposed changes to air navigation charges are still in the air. Alitalia has made it clear that it wants to consolidate all of its operations into a single dedicated terminal at Fiumicino airport, rather than having them spread across multiple terminals, as at present.

That may be good news for the airline but the affect on the airport owner and operator is not clear. Alitalia accounts for some 45 per cent of domestic traffic and about a quarter of international traffic at Fiumicino.

The first round of bidding for Brussels is expected to close soon and a pumped-up share price has helped give Macquarie Airports additional firepower, quite apart from the fees (performance and advisory) that Macquarie Bank will generate.

Other prospective bidders for Brussels include Copenhagen Airports, British investor 3i, Schiphol Group, Vinci and Fraport.

Hurricane hits QBE

Investors in international insurer QBE had the jitters again yesterday as Florida was hit by its fourth hurricane in less than six weeks.

Shares in QBE fell 15c to $12.72, having dropped almost 4 per cent in the past two weeks.

The stock wasn't helped by announcements from the world's two largest reinsurers, Munich Re and Swiss Re, which estimated their combined losses from the recent spate of storms at about $US1.2 billion ($1.68 billion).

Macquarie Research analysts remain unconcerned. They told clients in a note yesterday that QBE's exposure to the hurricanes was within its allowances for large losses and would not affect earnings forecasts.

Macquarie reckons that QBE's maximum exposure to an event in Florida would be about $US10 million, where total industry losses were between $US15 billion and $US20 billion. By comparison, Hurricane Charley, which hit Florida last month, is expected to cost the industry a total of about $US6.5 billion.

Perhaps even more importantly for QBE, the latest round of hurricanes should ensure that premium rates stay firm during the December renewal season and there may even be some increases in premiums.

Hutch's 3G vote

Hutchison Telecom Australia's minority shareholders will meet next month to vote on the proposed 3G alliance between Australia's only operational third generation mobile service provider and Telstra.

While the deal will not be put to a vote, shareholders will nevertheless be able to defuse the agreement due to the effect that a lock-out component of the deal will have on any potential takeover by its rivals, Optus and Vodafone.

Telstra, and Hutchison's controlling shareholding, Hutchison Whampoa (HWL), have agreed to the lock-out that excludes HWL from selling its controlling stake in Hutchison to Telstra's rivals Optus and Vodafone. This diminishes the possibility of a takeover from two of Australia's three largest mobile companies until June 30, 2007.

The deal is deemed to give Telstra a "relevant interest" in Hutchison Australia's shares, which needs to be approved by its minority shareholders.

Hutchison's independent directors support the deal, as does the independent report by Lonergan Edwards & Associates which finds the agreement to be "fair and reasonable" for non-associated shareholders.

Some analysts have said that Telstra overpaid for its stake but it could look cheap if HWL decides to get out of the market and sell its operations to its new partner. HWL's 58 per cent direct shareholding in its Australian subsidiary would increase to an almost insurmountable 87 per cent if its convertible notes and other interests are taken into account.

Go the tiddlers

After a strong run over the past year, UBS says small caps can achieve 25 per cent average earnings growth in 2005. But analysts warn that stock selection is important, you can't just dive in.

UBS says value is becoming harder to find in the Australian market but investor appetite is greater, pushing more investors into small cap terrain. Key picks include AAV, Baycorp Advantage, Just Group and SPC Ardmona.

© 2004 Sydney Morning Herald

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