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 (FRE) 1H21 Result Initial Thoughts</h2>
Freightways (FRE) reported a strong 1H21 result with underlying NPATA up +48% driven by a combination of (1) parcel volume growth accelerating with greater B2C mix, (2) pricing for effort gains, (3) the first time consolidation of the accretive Big Chill acquisition, and (4) margin recovery in Information Management. This is an impressive interim result that backs up the strong start to FY21 as evidenced in the Annual Shareholder Meeting update in October 2020. FRE is now leveraging its leading parcel operations to strategically target the higher growth B2C market, which should allow the company to sustain a higher level of earnings growth in future.
Key highlights as follows:
<ul>
<li>B2C volume growth has averaged ~+46% in the period with clear market share gains evident. Overall network parcel volumes have grown ~+10%.</li>
<li>Pricing for Effort yielded NZ$1.01 per item by December 2020 for residential delivered parcels compared to commercial deliveries.</li>
<li>The Big Chill acquisition, while not split out, is performing well as acknowledged in the significant increase in the provision for the earn-out aspect of the deal price (up by NZ$19.2m to NZ$46.8m).</li>
<li>Information Management margins have recovered strongly. EBITA margins are up +300bps to 18.4% as cost measures have more than made up for subdued revenue growth.</li>
<li>An interim dividend of 15.5c is lower than anticipated but may reflect a conservative stance in light of last year’s wage subsidy receipt and dividend suspension.</li>
</ul>
Outlook
FRE does not provide quantitative guidance. The qualitative commentary provides little real insight into management expectations for the next six months and as is usual maintains a cautious, keeping a lid on expectations feel. &nbsp;&nbsp;
The company has initiated its final stage of pricing for effort with a further 50c per residential delivery targeted from this month as it seeks to generate a NZ$1.50 uplift. &nbsp;
Analyst call
Management is holding an analyst call at 11am this morning. Access via&nbsp;<a href="https://us02web.zoom.us/j/87374590360?pwd=MEF4WldPOHBFZ2ZGUnBhOWJpSm5NQT09" target="_blank" data-saferedirecturl="https://www.google.com/url?q=https://us02web.zoom.us/j/87374590360?pwd%3DMEF4WldPOHBFZ2ZGUnBhOWJpSm5NQT09&amp;source=gmail&amp;ust=1614037292276000&amp;usg=AFQjCNGnCrroI_GPBlH1RXtwnshcNqBokw" rel="noopener">https://us02web.zoom.us/j/87374590360?pwd=MEF4WldPOHBFZ2ZGUnBhOWJpSm5NQT09</a>&nbsp;&nbsp;Meeting ID: 873 7459 0360, Passcode: 785944
Result summary (NZ$m)
<table class="table table-striped">
<tbody>
<tr>
<td style="width: 189.8pt;"></td>
<td style="width: 56.8pt;">
1H20
</td>
<td style="width: 56.8pt;">
1H21
</td>
<td style="width: 56.8pt;">
Chg
</td>
</tr>
<tr>
<td style="width: 189.8pt;">
Sales revenue
</td>
<td style="width: 56.8pt;">
318.9
</td>
<td style="width: 56.8pt;">
410.3
</td>
<td style="width: 56.8pt;">
28.7%
</td>
</tr>
<tr>
<td style="width: 189.8pt;">
Express Package &amp; Business Mail
</td>
<td style="width: 56.8pt;">
49.8
</td>
<td style="width: 56.8pt;">
74.4
</td>
<td style="width: 56.8pt;">
49.5%
</td>
</tr>
<tr>
<td style="width: 189.8pt;">
Information Management
</td>
<td style="width: 56.8pt;">
23.0
</td>
<td style="width: 56.8pt;">
26.5
</td>
<td style="width: 56.8pt;">
15.0%
</td>
</tr>
<tr>
<td style="width: 189.8pt;">
Corporate &amp; Other
</td>
<td style="width: 56.8pt;">
(1.6)
</td>
<td style="width: 56.8pt;">
(1.1)
</td>
<td style="width: 56.8pt;">
-27.6%
</td>
</tr>
<tr>
<td style="width: 189.8pt;">
EBITDA
</td>
<td style="width: 56.8pt;">
71.3
</td>
<td style="width: 56.8pt;">
99.8
</td>
<td style="width: 56.8pt;">
40.0%
</td>
</tr>
<tr>
<td style="width: 189.8pt;">
Depreciation and amortisation
</td>
<td style="width: 56.8pt;">
(8.5)
</td>
<td style="width: 56.8pt;">
(10.8)
</td>
<td style="width: 56.8pt;">
27.4%
</td>
</tr>
<tr>
<td style="width: 189.8pt;">
Lease deprecation
</td>
<td style="width: 56.8pt;">
(12.7)
</td>
<td style="width: 56.8pt;">
(18.0)
</td>
<td style="width: 56.8pt;">
n/a
</td>
</tr>
<tr>
<td style="width: 189.8pt;">
Acquisition amortisation
</td>
<td style="width: 56.8pt;">
(1.2)
</td>
<td style="width: 56.8pt;">
(3.8)
</td>
<td style="width: 56.8pt;">
229.4%
</td>
</tr>
<tr>
<td style="width: 189.8pt;">
One-time items
</td>
<td style="width: 56.8pt;">
0.0
</td>
<td style="width: 56.8pt;">
(19.2)
</td>
<td style="width: 56.8pt;">
n/a
</td>
</tr>
<tr>
<td style="width: 189.8pt;">
Interest expense
</td>
<td style="width: 56.8pt;">
(4.5)
</td>
<td style="width: 56.8pt;">
(5.2)
</td>
<td style="width: 56.8pt;">
14.8%
</td>
</tr>
<tr>
<td style="width: 189.8pt;">
Lease interest
</td>
<td style="width: 56.8pt;">
(4.0)
</td>
<td style="width: 56.8pt;">
(6.0)
</td>
<td style="width: 56.8pt;">
n/a
</td>
</tr>
<tr>
<td style="width: 189.8pt;">
Profit before tax
</td>
<td style="width: 56.8pt;">
40.4
</td>
<td style="width: 56.8pt;">
36.8
</td>
<td style="width: 56.8pt;">
-9.0%
</td>
</tr>
<tr>
<td style="width: 189.8pt;">
Taxation
</td>
<td style="width: 56.8pt;">
(11.2)
</td>
<td style="width: 56.8pt;">
(14.8)
</td>
<td style="width: 56.8pt;">
31.9%
</td>
</tr>
<tr>
<td style="width: 189.8pt;">
Reported NPAT
</td>
<td style="width: 56.8pt;">
29.2
</td>
<td style="width: 56.8pt;">
22.0
</td>
<td style="width: 56.8pt;">
-24.7%
</td>
</tr>
<tr>
<td style="width: 189.8pt;">
Adjustments
</td>
<td style="width: 56.8pt;">
1.2
</td>
<td style="width: 56.8pt;">
23.0
</td>
<td style="width: 56.8pt;">
1897.5%
</td>
</tr>
<tr>
<td style="width: 189.8pt;">
Underlying NPATA
</td>
<td style="width: 56.8pt;">
30.3
</td>
<td style="width: 56.8pt;">
45.0
</td>
<td style="width: 56.8pt;">
48.2%
</td>
</tr>
<tr>
<td style="width: 189.8pt;">
Underlying EPS (cents)
</td>
<td style="width: 56.8pt;">
18.8
</td>
<td style="width: 56.8pt;">
27.1
</td>
<td style="width: 56.8pt;">
44.3%
</td>
</tr>
<tr>
<td style="width: 189.8pt;">
Interim DPS (cents)
</td>
<td style="width: 56.8pt;">
15.00
</td>
<td style="width: 56.8pt;">
15.50
</td>
<td style="width: 56.8pt;">
3.3%
</td>
</tr>
</tbody>
</table>
Source: FRE, Forsyth Barr analysis
Andy Bowley&nbsp; Head of Research
<figure class="editor-figure mceNonEditable"><img src="https://mail.google.com/mail/u/0?ui=2&amp;ik=f57c39853c&amp;attid=0.2&amp;permmsgid=msg-f:1692342937508191696&amp;th=177c68ef6c511dd0&amp;view=fimg&amp;sz=s0-l75-ft&amp;attbid=ANGjdJ87BsL4Oi8jdp6givIcOsmQ6jK_P5BOtJmvgYMzwM1RW0rbG2IvkSE4l_Z2mdow_CxX4t3_airh74W8Pls6bfWcTeDrS6XPlCDA4o23y3S5RBuxNKwfBKiJYbw&amp;disp=emb" class="editor-image img-responsive"></figure>
 M: +64 21 338 941 |P: +64 4 495 8246 | TF: 0800 367 227&nbsp; Level 22, NTT Tower, 157 Lambton Quay, Wellington

Freightways (FRE) 1H21 Result Initial Thoughts
Freightways (FRE) reported a strong 1H21 result with underlying NPATA up +48% driven by a combination of (1) parcel volume growth accelerating with greater B2C mix, (2) pricing for effort gains, (3) the first time consolidation of the accretive Big Chill acquisition, and (4) margin recovery in Information Management. This is an impressive interim result that backs up the strong start to FY21 as evidenced in the Annual Shareholder Meeting update in October 2020. FRE is now leveraging its leading parcel operations to strategically target the higher growth B2C market, which should allow the company to sustain a higher level of earnings growth in future.
Key highlights as follows:

B2C volume growth has averaged ~+46% in the period with clear market share gains evident. Overall network parcel volumes have grown ~+10%.
Pricing for Effort yielded NZ$1.01 per item by December 2020 for residential delivered parcels compared to commercial deliveries.
The Big Chill acquisition, while not split out, is performing well as acknowledged in the significant increase in the provision for the earn-out aspect of the deal price (up by NZ$19.2m to NZ$46.8m).
Information Management margins have recovered strongly. EBITA margins are up +300bps to 18.4% as cost measures have more than made up for subdued revenue growth.
An interim dividend of 15.5c is lower than anticipated but may reflect a conservative stance in light of last year’s wage subsidy receipt and dividend suspension.

Outlook
FRE does not provide quantitative guidance. The qualitative commentary provides little real insight into management expectations for the next six months and as is usual maintains a cautious, keeping a lid on expectations feel. &nbsp;&nbsp;
The company has initiated its final stage of pricing for effort with a further 50c per residential delivery targeted from this month as it seeks to generate a NZ$1.50 uplift. &nbsp;
Analyst call
Management is holding an analyst call at 11am this morning. Access via&nbsp;https://us02web.zoom.us/j/87374590360?pwd=MEF4WldPOHBFZ2ZGUnBhOWJpSm5NQT09&nbsp;&nbsp;Meeting ID: 873 7459 0360, Passcode: 785944
Result summary (NZ$m)





1H20


1H21


Chg




Sales revenue


318.9


410.3


28.7%




Express Package &amp; Business Mail


49.8


74.4


49.5%




Information Management


23.0


26.5


15.0%




Corporate &amp; Other


(1.6)


(1.1)


-27.6%




EBITDA


71.3


99.8


40.0%




Depreciation and amortisation


(8.5)


(10.8)


27.4%




Lease deprecation


(12.7)


(18.0)


n/a




Acquisition amortisation


(1.2)


(3.8)


229.4%




One-time items


0.0


(19.2)


n/a




Interest expense


(4.5)


(5.2)


14.8%




Lease interest


(4.0)


(6.0)


n/a




Profit before tax


40.4


36.8


-9.0%




Taxation


(11.2)


(14.8)


31.9%




Reported NPAT


29.2


22.0


-24.7%




Adjustments


1.2


23.0


1897.5%




Underlying NPATA


30.3


45.0


48.2%




Underlying EPS (cents)


18.8


27.1


44.3%




Interim DPS (cents)


15.00


15.50


3.3%




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 (FRE): 1H21 Result Initial Thoughts

Freightways Ltd

Freightways (FRE): 1H21 Result Initial Thoughts