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DAA's negative rating 'doesn't reflect upgrades'

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DAVY Stockbrokers has said that Standard & Poor's negative outlook and its 'BBB' rating on the Dublin Airport Authority (DAA) doesn't reflect upgrades that have been made to other Irish utilities and improving metrics at the semi-state.

Last month, the DAA unveiled its full-year results for 2012, with revenue climbing 3pc to €575m.

The results showed that the company's international business, which includes duty free operations around the world, generated €27m of the group's underlying €29m pre-exceptional profit after tax last year.

That included a €10m dividend from Dusseldorf Airport, in which the DAA has a 20pc stake. The remaining €2m in profits was generated at Dublin.

The DAA now comprises Dublin and Cork airports following the hiving off of Shannon Airport last year into a separate, standalone entity outside the DAA's remit.

Davy Stockbrokers pointed out that the DAA's results showed that a "turnaround in momentum" seen in 2011 had continued in 2012, with a second consecutive year of passenger growth at Dublin and increased profitability, despite the weak economic backdrop.

The DAA's net debt also fell by €60m last year, despite taking on the debts that were owed by Shannon.

"In our view, Standard & Poor's negative outlook with their 'BBB' rating doesn't reflect the increase in funds from operations to debt percentage, the divesture of Shannon without the expected accompanying large cash transfer which were cited as risk factors previously, nor the upgrade in outlook of the other Irish utilities in February 2012," according to Davy.

It said that the DAA's liquidity remains strong, with €500m of cash on its books, a revolving credit facility of €150m and no significant maturities looming.

It noted that 85pc of the DAA's borrowings are set to mature in more than five years and half the €1.17bn of gross debt on its books is borrowings from the European Investment Bank (EIB).

Funding from the EIB typically attracts a lower interest rate than from mainstream commercial lenders as it's a non-profit organisation.

Davy said that while the unresolved pension dispute regarding a scheme that serves thousands of former DAA and Aer Lingus staff and which has a deficit close to €1bn "remains a risk", the DAA's debt metrics should be supported by a supportive shareholder position.

While the Government has put the squeeze on semi-states to deliver dividends, the DAA hasn't had to pay anything for the past three years.

Irish Independent