New Zealand Professional Investment Services Firm

Forsyth Barr

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.

New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

Freightways 1H21&nbsp;— Picked-Up and Delivered

OUTPERFORM
Freightways&nbsp;(FRE) reported a very strong 1H21 result, highlighting its enhanced quality characteristics and more attractive growth profile than yesteryear. The repositioning to take advantage&nbsp;of profitable secular growth in B2C (business-to-consumer) parcels,&nbsp;medical waste and temperature controlled freight, is being rewarded. We believe FRE is now a higher growth business, strategically rational but more willing to take risks. It has justifiably&nbsp;re-rated over the past six months yet at ~20x one year forward PE it still trades at a material discount to the domestic market. We believe it is now a higher quality business (enhanced competitive positioning, better growth potential, improved M&amp;A track record, and lower exposure to sunset industries) that deserves a higher multiple. We retain an OUTPERFORM rating.&nbsp;


What's changed?&nbsp;



Earnings forecasts:&nbsp;+2% to +3% NPATA (NPAT before acquisition related amortisation) upgrades over the next three years
Target price:&nbsp;Lifted to NZ$11.00 from NZ$10.50



Impressive volume growth&nbsp;​​​​​​​


FRE is enjoying unprecedented organic revenue growth. We estimate after accounting for Big Chill and the since completed trans-Tasman airfreight operations, its Express Package operations (excluding DX Mail) grew revenues by +11% against the prior year, partly boosted by an additional week of trading. This strong growth more than made up for more pedestrian growth across Information Management (+3%), which experienced subdued handling activity within storage facilities.


Parcel margin uplift&nbsp;​​​​​​​


The adverse margin mix headwind from higher growth but lower margin B2C (business-to-consumer) parcels that has dogged FRE’s Express Package business appears to have passed an inflection point. We point to two key reasons which have more than offset the consolidation of slightly lower margin Big Chill in the period: (1) ‘Pricing for Effort’ has allowed FRE to account for the higher last mile cost of residential deliveries and generate an adequate margin. (2) Double digit parcel network growth, driven by stellar B2C and modest B2B increases, has helped drive operating leverage benefits.&nbsp;&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;


M&amp;A boost


​​​​​​​FRE has always been an acquisitive company, yet the average deal size before Big Chill was tiny. Moreover, its troubled LitSupport deal in FY15 had created reasonable investor caution as to its M&amp;A pedigree. Since Big Chill was announced it hasn’t missed a beat, despite the early COVID-19 challenges. Big Chill has outperformed, for which FRE will pay the vendors for, in its larger earn-out due August 2022. Management appears hungry for larger deals offering greater rewards and history suggests it will remain rational. &nbsp;​​​​​​​



Andy Bowley
andy.bowley@forsythbarr.co.nz
+64 4 495 8246





Scott Anderson
scott.anderson@forsythbarr.co.nz
+64 4 914 2219



Freightways: 1H21 — Picked-Up and Delivered

Freightways Ltd

Freightways: 1H21 — Picked-Up and Delivered