New Zealand Professional Investment Services Firm

Forsyth Barr

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New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>Freightways&nbsp;</h2>
1H20 Result Initial Impressions
Freightways (FRE) reported a soft first half result impacted by lower volumes in Express Package and further margin degradation in Information Management. Underlying NPAT (prior to IFRS 16 adjustments) was down -6% to NZ$30.3m on revenue growth of +1%. Non-cash IFRS 16 knocked a further -NZ$1.1m of this, or -4%.
Key points:
<ul>
<li>Express Package revenue growth of +1.8% despite a c.-1% decline in volumes. The volume decline trend appears to be improving. Divisional margins are stable.</li>
<li>The pricing for effort strategy has made some headway with a December uplift on residential parcels of NZ$0.66 per parcel, up from NZ$0.55 in October.</li>
<li>Information Management had another tough period with EBITA down -25% on flat revenue. Lower paper prices and reduced volumes through FRE’s print and copy bureaus have impacted performance in Australia. The division commenced a major digitation project in late January, which should assist performance through 2H20 and into FY21.</li>
<li>FRE continues to wait for OIO approval for its acquisition of Big Chill.</li>
<li>The company will pay an interim dividend of 15cps (flat on last year).</li>
</ul>
Outlook
FRE doesn’t provide earnings guidance, however at its FY19 result in August 2019 it said then that it was “targeting year-on-year earnings growth in 2020”. The omission of this in the 1H20 outlook commentary suggests that a second half rebound is unlikely and therefore market expectations will need to be tempered. &nbsp;
Capex guidance for FY20 has increased marginally to NZ$25m –NZ$26m.
Our view
We expect market earnings expectations to fall following the 1H20 result, reflecting a combination of a weaker than anticipated underlying performance, and the incorporation of IFRS 16 into forecasts for the first time.
Result summary (NZ$m) – 1H20 incorporate IFRS 16
<table class="table table-striped">
<tbody>
<tr>
<td style="width: 170.4pt;"></td>
<td style="width: 49.4pt;">
1H19
</td>
<td style="width: 52.4pt;">
1H20
</td>
<td style="width: 52.4pt;">
Change
</td>
</tr>
<tr>
<td style="width: 170.4pt;">
Profit and loss account
</td>
<td style="width: 49.4pt;"></td>
<td style="width: 52.4pt;"></td>
<td style="width: 52.4pt;"></td>
</tr>
<tr>
<td style="width: 170.4pt;">
Sales revenue
</td>
<td style="width: 49.4pt;">
314.8
</td>
<td style="width: 52.4pt;">
318.9
</td>
<td style="width: 52.4pt;">
2.6%
</td>
</tr>
<tr>
<td style="width: 170.4pt;">
Express Package &amp; Business Mail
</td>
<td style="width: 49.4pt;">
42.4
</td>
<td style="width: 52.4pt;">
49.8
</td>
<td style="width: 52.4pt;">
4.0%
</td>
</tr>
<tr>
<td style="width: 170.4pt;">
Information Management
</td>
<td style="width: 49.4pt;">
17.6
</td>
<td style="width: 52.4pt;">
23.0
</td>
<td style="width: 52.4pt;">
-6.3%
</td>
</tr>
<tr>
<td style="width: 170.4pt;">
Corporate &amp; Other
</td>
<td style="width: 49.4pt;">
(1.8)
</td>
<td style="width: 52.4pt;">
(1.6)
</td>
<td style="width: 52.4pt;">
-16.2%
</td>
</tr>
<tr>
<td style="width: 170.4pt;">
EBITDA
</td>
<td style="width: 49.4pt;">
58.2
</td>
<td style="width: 52.4pt;">
71.3
</td>
<td style="width: 52.4pt;">
1.5%
</td>
</tr>
<tr>
<td style="width: 170.4pt;">
Depreciation and amortisation
</td>
<td style="width: 49.4pt;">
(7.5)
</td>
<td style="width: 52.4pt;">
(21.2)
</td>
<td style="width: 52.4pt;">
5.4%
</td>
</tr>
<tr>
<td style="width: 170.4pt;">
Acquisition amortisation
</td>
<td style="width: 49.4pt;">
(1.0)
</td>
<td style="width: 52.4pt;">
(1.2)
</td>
<td style="width: 52.4pt;">
9.6%
</td>
</tr>
<tr>
<td style="width: 170.4pt;">
One-time items
</td>
<td style="width: 49.4pt;">
1.4
</td>
<td style="width: 52.4pt;">
0.0
</td>
<td style="width: 52.4pt;">
n/a
</td>
</tr>
<tr>
<td style="width: 170.4pt;">
Interest expense
</td>
<td style="width: 49.4pt;">
(5.0)
</td>
<td style="width: 52.4pt;">
(8.5)
</td>
<td style="width: 52.4pt;">
-10.2%
</td>
</tr>
<tr>
<td style="width: 170.4pt;">
Profit before tax
</td>
<td style="width: 49.4pt;">
46.1
</td>
<td style="width: 52.4pt;">
40.4
</td>
<td style="width: 52.4pt;">
-1.0%
</td>
</tr>
<tr>
<td style="width: 170.4pt;">
Taxation
</td>
<td style="width: 49.4pt;">
(12.7)
</td>
<td style="width: 52.4pt;">
(11.2)
</td>
<td style="width: 52.4pt;">
3.1%
</td>
</tr>
<tr>
<td style="width: 170.4pt;">
Reported NPAT
</td>
<td style="width: 49.4pt;">
33.4
</td>
<td style="width: 52.4pt;">
29.2
</td>
<td style="width: 52.4pt;">
-2.6%
</td>
</tr>
<tr>
<td style="width: 170.4pt;">
Abnormals (post tax)
</td>
<td style="width: 49.4pt;">
(0.4)
</td>
<td style="width: 52.4pt;">
0.0
</td>
<td style="width: 52.4pt;">
-100.0%
</td>
</tr>
<tr>
<td style="width: 170.4pt;">
Underlying NPAT
</td>
<td style="width: 49.4pt;">
33.0
</td>
<td style="width: 52.4pt;">
29.2
</td>
<td style="width: 52.4pt;">
-1.5%
</td>
</tr>
<tr>
<td style="width: 170.4pt;">
Underlying EPS (cents)
</td>
<td style="width: 49.4pt;">
21.3
</td>
<td style="width: 52.4pt;">
18.8
</td>
<td style="width: 52.4pt;">
-1.5%
</td>
</tr>
<tr>
<td style="width: 170.4pt;">
Interim DPS (cents)
</td>
<td style="width: 49.4pt;">
15.00
</td>
<td style="width: 52.4pt;">
15.00
</td>
<td style="width: 52.4pt;">
0.0%
</td>
</tr>
</tbody>
</table>
Source: FRE, Forsyth Barr analysis
Andy Bowley&nbsp; Head of Research
M: +64 21 338 941 |P: +64 4 495 8246 | TF: 0800 367 227&nbsp; Level 22, NTT Tower, 157 Lambton Quay, Wellington

Freightways&nbsp;
1H20 Result Initial Impressions
Freightways (FRE) reported a soft first half result impacted by lower volumes in Express Package and further margin degradation in Information Management. Underlying NPAT (prior to IFRS 16 adjustments) was down -6% to NZ$30.3m on revenue growth of +1%. Non-cash IFRS 16 knocked a further -NZ$1.1m of this, or -4%.
Key points:

Express Package revenue growth of +1.8% despite a c.-1% decline in volumes. The volume decline trend appears to be improving. Divisional margins are stable.
The pricing for effort strategy has made some headway with a December uplift on residential parcels of NZ$0.66 per parcel, up from NZ$0.55 in October.
Information Management had another tough period with EBITA down -25% on flat revenue. Lower paper prices and reduced volumes through FRE’s print and copy bureaus have impacted performance in Australia. The division commenced a major digitation project in late January, which should assist performance through 2H20 and into FY21.
FRE continues to wait for OIO approval for its acquisition of Big Chill.
The company will pay an interim dividend of 15cps (flat on last year).

Outlook
FRE doesn’t provide earnings guidance, however at its FY19 result in August 2019 it said then that it was “targeting year-on-year earnings growth in 2020”. The omission of this in the 1H20 outlook commentary suggests that a second half rebound is unlikely and therefore market expectations will need to be tempered. &nbsp;
Capex guidance for FY20 has increased marginally to NZ$25m –NZ$26m.
Our view
We expect market earnings expectations to fall following the 1H20 result, reflecting a combination of a weaker than anticipated underlying performance, and the incorporation of IFRS 16 into forecasts for the first time.
Result summary (NZ$m) – 1H20 incorporate IFRS 16





1H19


1H20


Change




Profit and loss account







Sales revenue


314.8


318.9


2.6%




Express Package &amp; Business Mail


42.4


49.8


4.0%




Information Management


17.6


23.0


-6.3%




Corporate &amp; Other


(1.8)


(1.6)


-16.2%




EBITDA


58.2


71.3


1.5%




Depreciation and amortisation


(7.5)


(21.2)


5.4%




Acquisition amortisation


(1.0)


(1.2)


9.6%




One-time items


1.4


0.0


n/a




Interest expense


(5.0)


(8.5)


-10.2%




Profit before tax


46.1


40.4


-1.0%




Taxation


(12.7)


(11.2)


3.1%




Reported NPAT


33.4


29.2


-2.6%




Abnormals (post tax)


(0.4)


0.0


-100.0%




Underlying NPAT


33.0


29.2


-1.5%




Underlying EPS (cents)


21.3


18.8


-1.5%




Interim DPS (cents)


15.00


15.00


0.0%




Source: FRE, Forsyth Barr analysis
Andy Bowley&nbsp; Head of Research
M: +64 21 338 941 |P: +64 4 495 8246 | TF: 0800 367 227&nbsp; Level 22, NTT Tower, 157 Lambton Quay, Wellington

Freightways: 1H20 Result Initial Impressions

Freightways Ltd

Freightways: 1H20 Result Initial Impressions