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

<h2>Infratil<br>1H22 Preview&nbsp;&nbsp;— Looking Ahead</h2>
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<p><strong>OUTPERFORM</strong></p>
<p>Infratil (IFT) will report its 1H22 result on Friday, 12 November. Our key focus will be on its two major assets; (1) CDC, and (2) Vodafone NZ (VNZ), which collectively make up ~50% of assets (by value) along with commentary around recent acquisitions. Specifically, we will be focussed on; (1) any commentary related to CDC's growth rate in FY23, commentary at IFT's FY21 result in May suggested expectations of &gt;+40%, (2) VNZ EBITDA margins, at the FY21 result VNZ margins showed the first real signs of expansion since acquisition, and (3) performance from IFT's two recently acquired diagnostic imaging business, particularly in light of COVID-19 lockdowns in both New Zealand and Australia. IFT is one of our top picks in the broader infrastructure and yield space in NZ. We remain attracted to its excellent track record of being a good custodian of capital with disciplined acquisitions, organic deployment of capital above WACC and timely exits.&nbsp;</p>
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<h3>CDC — FY21 result in May pointed to a weaker than normal FY22 but a very strong FY23; an update on FY23 will be key</h3>
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<p>IFT guided&nbsp;towards a softer FY22 for CDC with&nbsp;+12% EBITDA growth at the mid-point. However, IFT also stated expectations that the FY21 to FY23 &nbsp;EBITDA CAGR will be in-line with medium term targets of ~+25%, implying &gt;+40%&nbsp;EBITDA growth in FY23.&nbsp;While not firm guidance, this caused the market (and&nbsp;Forsyth&nbsp;Barr) to look through what is likely to be an unusually weak FY22 compared to historical growth rates.&nbsp;On our SOTP valuation, CDC makes up&nbsp;over 30% —&nbsp;any commentary around EBITDA expectations for FY23 and beyond is likely to be a key driver.&nbsp;</p>
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<h3>Realising platform value through.....new disclosure?&nbsp;</h3>
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<p>In September IFT&nbsp;announced an investment into another&nbsp;renewables&nbsp;start up,&nbsp;Gurin&nbsp;Energy. IFT now&nbsp;part owns three&nbsp;renewables&nbsp;companies (Longroad, Galileo and&nbsp;Gurin),&nbsp;focussed&nbsp;on the US, Europe and Asian markets&nbsp;respectively. Each asset individually is relatively minor in the context of&nbsp;IFT's&nbsp;total&nbsp;assets. However, we believe that&nbsp;IFT's&nbsp;renewables&nbsp;portfolio has the potential to demonstrate&nbsp;the idea of "platform value". IFT has long promoted the value of its platforms, with&nbsp;renewables&nbsp;being one. The promoted idea is that IFT is not just a collection of assets but a collection of platforms continuing to deliver value.&nbsp;Increased and improved disclosure around the combined contribution and outlook for these&nbsp;​​​​​​​three assets could drive acknowledgement from the market.&nbsp;</p>
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<h3>Discount narrowed to ~-3% but the day before earnings is maximum uncertainty&nbsp;</h3>
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<p>IFT has performed well, up +10% over the last 3 months, particularly in-light of it being relatively interest rate sensitive. Our discount to our market based net asset value (NAV) has declined to ~-3%. However, this discount factors in full capitalisation of operating expenses and we value several of&nbsp;IFT's&nbsp; smaller assets&nbsp;at latest reported book value (from the FY21 result in May).&nbsp;</p>
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Infratil 1H22 Preview&nbsp;&nbsp;— Looking Ahead

OUTPERFORM
Infratil (IFT) will report its 1H22 result on Friday, 12 November. Our key focus will be on its two major assets; (1) CDC, and (2) Vodafone NZ (VNZ), which collectively make up ~50% of assets (by value) along with commentary around recent acquisitions. Specifically, we will be focussed on; (1) any commentary related to CDC's growth rate in FY23, commentary at IFT's FY21 result in May suggested expectations of &gt;+40%, (2) VNZ EBITDA margins, at the FY21 result VNZ margins showed the first real signs of expansion since acquisition, and (3) performance from IFT's two recently acquired diagnostic imaging business, particularly in light of COVID-19 lockdowns in both New Zealand and Australia. IFT is one of our top picks in the broader infrastructure and yield space in NZ. We remain attracted to its excellent track record of being a good custodian of capital with disciplined acquisitions, organic deployment of capital above WACC and timely exits.&nbsp;

CDC — FY21 result in May pointed to a weaker than normal FY22 but a very strong FY23; an update on FY23 will be key


IFT guided&nbsp;towards a softer FY22 for CDC with&nbsp;+12% EBITDA growth at the mid-point. However, IFT also stated expectations that the FY21 to FY23 &nbsp;EBITDA CAGR will be in-line with medium term targets of ~+25%, implying &gt;+40%&nbsp;EBITDA growth in FY23.&nbsp;While not firm guidance, this caused the market (and&nbsp;Forsyth&nbsp;Barr) to look through what is likely to be an unusually weak FY22 compared to historical growth rates.&nbsp;On our SOTP valuation, CDC makes up&nbsp;over 30% —&nbsp;any commentary around EBITDA expectations for FY23 and beyond is likely to be a key driver.&nbsp;


Realising platform value through.....new disclosure?&nbsp;


In September IFT&nbsp;announced an investment into another&nbsp;renewables&nbsp;start up,&nbsp;Gurin&nbsp;Energy. IFT now&nbsp;part owns three&nbsp;renewables&nbsp;companies (Longroad, Galileo and&nbsp;Gurin),&nbsp;focussed&nbsp;on the US, Europe and Asian markets&nbsp;respectively. Each asset individually is relatively minor in the context of&nbsp;IFT's&nbsp;total&nbsp;assets. However, we believe that&nbsp;IFT's&nbsp;renewables&nbsp;portfolio has the potential to demonstrate&nbsp;the idea of "platform value". IFT has long promoted the value of its platforms, with&nbsp;renewables&nbsp;being one. The promoted idea is that IFT is not just a collection of assets but a collection of platforms continuing to deliver value.&nbsp;Increased and improved disclosure around the combined contribution and outlook for these&nbsp;​​​​​​​three assets could drive acknowledgement from the market.&nbsp;


Discount narrowed to ~-3% but the day before earnings is maximum uncertainty&nbsp;


IFT has performed well, up +10% over the last 3 months, particularly in-light of it being relatively interest rate sensitive. Our discount to our market based net asset value (NAV) has declined to ~-3%. However, this discount factors in full capitalisation of operating expenses and we value several of&nbsp;IFT's&nbsp; smaller assets&nbsp;at latest reported book value (from the FY21 result in May).&nbsp;


Infratil Ltd

Infratil: 1H22 Preview — Looking Ahead