Air New Zealand Poised to Raise Capital, but Shares Remain Undervalued

We maintain our NZD 2.00 fair value estimate for shares in no-moat Air New Zealand as the company flags a potential equity raise following the completion of a capital structure review in early calendar 2021. As expected, with monthly cash burn of around NZD 75 million, the firm has started to drawdown on its NZD 900 million loan facility provided by the New Zealand government--the airline's majority shareholder. This debt funding agreement can force Air New Zealand to raise capital to repay the loan or convert the loan to equity. We do not expect Air New Zealand will need to raise the entire balance of the loan facility, and currently forecast a raise of NZD 450 million before the end of fiscal 2021.