New Zealand Professional Investment Services Firm, Forsyth Barr

Forsyth Barr

New Zealand Professional Investment Services Firm

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

Equity Bottom-Up

<h2>Freightways &nbsp;</h2>

FY19 Result Initial Impressions
Freightways (FRE) reported a FY19 result marginally below market expectations. Underlying NPAT growth of +2% for the year meant a small decline in 2H19. While Express Package &amp; Business Mail grew EBITA by +6% in the year, Information Management suffered a -2% decline, with further margin deterioration evident. With no further M&amp;A announced net debt is broadly on par with the prior year level and FRE has announced a small lift in the final dividend to 15.5c (giving a full year pay-out of 30.5c).
The Express Package &amp; Business Mail grew margins in 2H19 despite slower volume growth, as it exited low margin business. The B2C proportion of deliveries is now ~20%. As previously acknowledged FRE’s same-customer volumes flattened off during 2H19 suggesting slower business momentum heading into FY20. &nbsp;
Information Management’s (IM) margin declined through FY19, in part reflecting the investment in new fleet capacity at Shred-X. Australian IM earnings are now larger than NZ’s though command a lower margin given lower utilisation rates.
Outlook
FRE doesn’t typically provide quantitative guidance. Its qualitative guidance suggests that it is expecting another year of profit growth (no surprise to the market) based on (1) its pricing for effort initiatives in express package, and (2) its diversification strategy in information management.
Our view
FY19 was a transitional year for FRE in terms of putting in place the architecture for more profitable B2C growth in future. It has now done this though appears to have lost some B2C customers as a result. Notwithstanding the risk of a further deterioration in B2B volumes, we expect profit growth to pick up in the year ahead.
&nbsp;FY19 result summary (NZ$m)
<table class="table table-striped">
<tbody>
<tr>
<td></td>
<td>
FY18
</td>
<td>
FY19
</td>
<td>
Change
</td>
</tr>
<tr>
<td>
Profit and loss account
</td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td>
Sales revenue
</td>
<td>
580.9
</td>
<td>
615.7
</td>
<td>
6.0%
</td>
</tr>
<tr>
<td>
Express Package &amp; Business Mail
</td>
<td>
74.8
</td>
<td>
80.0
</td>
<td>
6.9%
</td>
</tr>
<tr>
<td>
Information Management
</td>
<td>
35.4
</td>
<td>
35.3
</td>
<td>
-0.1%
</td>
</tr>
<tr>
<td>
Corporate &amp; Other
</td>
<td>
(2.5)
</td>
<td>
(3.1)
</td>
<td>
26.4%
</td>
</tr>
<tr>
<td>
EBITDA
</td>
<td>
107.7
</td>
<td>
112.2
</td>
<td>
4.2%
</td>
</tr>
<tr>
<td>
Depreciation and amortisation
</td>
<td>
(14.0)
</td>
<td>
(15.4)
</td>
<td>
10.3%
</td>
</tr>
<tr>
<td>
Acquisition amortisation
</td>
<td>
(2.0)
</td>
<td>
(2.1)
</td>
<td>
6.0%
</td>
</tr>
<tr>
<td>
One-time items
</td>
<td>
2.6
</td>
<td>
2.4
</td>
<td>
n/a
</td>
</tr>
<tr>
<td>
Interest expense
</td>
<td>
(9.7)
</td>
<td>
(9.6)
</td>
<td>
-1.0%
</td>
</tr>
<tr>
<td>
Profit before tax
</td>
<td>
84.7
</td>
<td>
87.5
</td>
<td>
3.3%
</td>
</tr>
<tr>
<td>
Taxation
</td>
<td>
(22.5)
</td>
<td>
(24.1)
</td>
<td>
7.2%
</td>
</tr>
<tr>
<td>
Reported NPAT
</td>
<td>
62.2
</td>
<td>
63.4
</td>
<td>
2.0%
</td>
</tr>
<tr>
<td>
Abnormals (post tax)
</td>
<td>
(2.6)
</td>
<td>
(2.4)
</td>
<td>
-7.9%
</td>
</tr>
<tr>
<td>
Underlying NPAT
</td>
<td>
59.6
</td>
<td>
61.0
</td>
<td>
2.4%
</td>
</tr>
<tr>
<td>
Underlying EPS (cents)
</td>
<td>
38.5
</td>
<td>
39.4
</td>
<td>
2.4%
</td>
</tr>
<tr>
<td>
Final DPS (cents)
</td>
<td>
15.25
</td>
<td>
15.50
</td>
<td>
1.6%
</td>
</tr>
<tr>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td>
Cashflow and net debt
</td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td>
Operating cashflow
</td>
<td>
75.7
</td>
<td>
76.0
</td>
<td>
0%
</td>
</tr>
<tr>
<td>
Maintenance capex = depreciation
</td>
<td>
(14.0)
</td>
<td>
(15.4)
</td>
<td>
10%
</td>
</tr>
<tr>
<td>
Disposals
</td>
<td>
1.2
</td>
<td>
2.5
</td>
<td>
111%
</td>
</tr>
<tr>
<td>
Free cash flow
</td>
<td>
62.9
</td>
<td>
63.0
</td>
<td>
0%
</td>
</tr>
<tr>
<td>
Acquisitions
</td>
<td>
(7.4)
</td>
<td>
(11.1)
</td>
<td>
50%
</td>
</tr>
<tr>
<td>
Net debt
</td>
<td>
154.4
</td>
<td>
151.4
</td>
<td>
-2%
</td>
</tr>
<tr>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td>
Margin analysis
</td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td>
Express Package &amp; Business Mail
</td>
<td>
17.5%
</td>
<td>
17.7%
</td>
<td>
21 bps
</td>
</tr>
<tr>
<td>
Information Management
</td>
<td>
23.0%
</td>
<td>
21.5%
</td>
<td>
-150 bps
</td>
</tr>
<tr>
<td>
Group EBITDA margin
</td>
<td>
18.5%
</td>
<td>
18.2%
</td>
<td>
-32 bps
</td>
</tr>
<tr>
<td>
Group EBITA margin
</td>
<td>
16.1%
</td>
<td>
15.4%
</td>
<td>
-75 bps
</td>
</tr>
<tr>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td>
Divisional sales growth
</td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td>
Express Package &amp; Business Mail
</td>
<td>
6.5%
</td>
<td>
5.7%
</td>
<td>
-83 bps
</td>
</tr>
<tr>
<td>
Information Management
</td>
<td>
6.7%
</td>
<td>
6.9%
</td>
<td>
21 bps
</td>
</tr>
</tbody>
</table>
&nbsp;Source: Forsyth Barr analysis
Andy Bowley&nbsp;
Head of Research&nbsp;
<table class="table table-striped">
<tbody>
<tr>
<td>
T:&nbsp;
</td>
<td>
+64 4 495 8246
</td>
</tr>
<tr>
<td>
M:&nbsp;
</td>
<td>
+64 21 338 941
</td>
</tr>
<tr>
<td>
TF:&nbsp;
</td>
<td>
0800 367 227
</td>
</tr>
<tr>
<td>
F:&nbsp;
</td>
<td>
+64 4 495 8193
</td>
</tr>
<tr>
<td>
P:&nbsp;
</td>
<td>
PO Box: 5266, Wellington 6145
</td>
</tr>
<tr>
<td>
&nbsp;
</td>
<td>
&nbsp;
</td>
</tr>
<tr>
<td>
W:&nbsp;
</td>
<td>
<a href="http://www.forsythbarr.co.nz/" target="_blank" data-saferedirecturl="https://www.google.com/url?q=http://www.forsythbarr.co.nz&amp;source=gmail&amp;ust=1567067639895000&amp;usg=AFQjCNGquAKUNtaeJGd02gW9YchTn9GFTQ" rel="noopener">www.forsythbarr.co.nz</a>
</td>
</tr>
<tr>
<td>Twitter:</td>
<td>
<a href="http://twitter.com/forsythbarr" target="_blank" data-saferedirecturl="https://www.google.com/url?q=http://twitter.com/forsythbarr&amp;source=gmail&amp;ust=1567067639895000&amp;usg=AFQjCNHo2qUXY778nUlHUURz5joa2wfTkQ" rel="noopener">@forsythbarr</a>
</td>
</tr>
</tbody>
</table>

Freightways &nbsp;

FY19 Result Initial Impressions
Freightways (FRE) reported a FY19 result marginally below market expectations. Underlying NPAT growth of +2% for the year meant a small decline in 2H19. While Express Package &amp; Business Mail grew EBITA by +6% in the year, Information Management suffered a -2% decline, with further margin deterioration evident. With no further M&amp;A announced net debt is broadly on par with the prior year level and FRE has announced a small lift in the final dividend to 15.5c (giving a full year pay-out of 30.5c).
The Express Package &amp; Business Mail grew margins in 2H19 despite slower volume growth, as it exited low margin business. The B2C proportion of deliveries is now ~20%. As previously acknowledged FRE’s same-customer volumes flattened off during 2H19 suggesting slower business momentum heading into FY20. &nbsp;
Information Management’s (IM) margin declined through FY19, in part reflecting the investment in new fleet capacity at Shred-X. Australian IM earnings are now larger than NZ’s though command a lower margin given lower utilisation rates.
Outlook
FRE doesn’t typically provide quantitative guidance. Its qualitative guidance suggests that it is expecting another year of profit growth (no surprise to the market) based on (1) its pricing for effort initiatives in express package, and (2) its diversification strategy in information management.
Our view
FY19 was a transitional year for FRE in terms of putting in place the architecture for more profitable B2C growth in future. It has now done this though appears to have lost some B2C customers as a result. Notwithstanding the risk of a further deterioration in B2B volumes, we expect profit growth to pick up in the year ahead.
&nbsp;FY19 result summary (NZ$m)





FY18


FY19


Change




Profit and loss account







Sales revenue


580.9


615.7


6.0%




Express Package &amp; Business Mail


74.8


80.0


6.9%




Information Management


35.4


35.3


-0.1%




Corporate &amp; Other


(2.5)


(3.1)


26.4%




EBITDA


107.7


112.2


4.2%




Depreciation and amortisation


(14.0)


(15.4)


10.3%




Acquisition amortisation


(2.0)


(2.1)


6.0%




One-time items


2.6


2.4


n/a




Interest expense


(9.7)


(9.6)


-1.0%




Profit before tax


84.7


87.5


3.3%




Taxation


(22.5)


(24.1)


7.2%




Reported NPAT


62.2


63.4


2.0%




Abnormals (post tax)


(2.6)


(2.4)


-7.9%




Underlying NPAT


59.6


61.0


2.4%




Underlying EPS (cents)


38.5


39.4


2.4%




Final DPS (cents)


15.25


15.50


1.6%










Cashflow and net debt







Operating cashflow


75.7


76.0


0%




Maintenance capex = depreciation


(14.0)


(15.4)


10%




Disposals


1.2


2.5


111%




Free cash flow


62.9


63.0


0%




Acquisitions


(7.4)


(11.1)


50%




Net debt


154.4


151.4


-2%










Margin analysis







Express Package &amp; Business Mail


17.5%


17.7%


21 bps




Information Management


23.0%


21.5%


-150 bps




Group EBITDA margin


18.5%


18.2%


-32 bps




Group EBITA margin


16.1%


15.4%


-75 bps










Divisional sales growth







Express Package &amp; Business Mail


6.5%


5.7%


-83 bps




Information Management


6.7%


6.9%


21 bps




&nbsp;Source: Forsyth Barr analysis
Andy Bowley&nbsp;
Head of Research&nbsp;




T:&nbsp;


+64 4 495 8246




M:&nbsp;


+64 21 338 941




TF:&nbsp;


0800 367 227




F:&nbsp;


+64 4 495 8193




P:&nbsp;


PO Box: 5266, Wellington 6145




&nbsp;


&nbsp;




W:&nbsp;


www.forsythbarr.co.nz



Twitter:

@forsythbarr





Freightways: FY19 Result Initial Impressions

New Zealand

Freightways Limited provides express package services throughout New Zealand along with providing information management and business mail services.  The Company's courier services includes same day and overnight national and international deliveries, freight forwarding services, computer media transport and payroll data deliveries.

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Freightways Ltd (FRE NZ)

Freightways: FY19 Result Initial Impressions

Freightways FY19 Result Initial Impressions Freightways (FRE) reported a FY19 result marginally below market expectations. Underlying NPAT...

Forsyth Barr

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