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 Result&nbsp;— Changing its Stripes</h2>
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<p><strong>OUTPERFORM</strong></p>
<p>Infratil&nbsp;(IFT) is changing its stripes. Four years ago its portfolio was dominated by the listed utilities&nbsp;Trustpower&nbsp;(TPW) and Tilt (~50%) along with the unlisted Wellington Airport (25%). All three assets had been owned for decades and a meaningful proportion of&nbsp;IFT's&nbsp;performance was driven by being levered into a rising market. Today, only 15% of&nbsp;IFT's&nbsp;assets are listed (TPW) and&nbsp;two-thirds of assets have been owned for less than 6&nbsp;years.&nbsp;IFT is transforming&nbsp;from a listed infrastructure fund to&nbsp;more resembling&nbsp;listed private equity.&nbsp;IFT's&nbsp;transformation has been rewarded by the market. We estimate that the "raw" discount has declined from&nbsp;being stable at&nbsp;around 30% four years ago to around 15% today, a motivated development in our view.&nbsp;If IFT keeps its asset velocity at current high levels, i.e. continues to opportunistically sell as well as buy assets, we believe this discount could close further. We retain our OUTPERFORM rating with an increased target price&nbsp;of NZ$9.15.</p>
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<h3>What's changed?&nbsp;</h3>
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<li><strong>Earnings</strong>:&nbsp;Largely unchanged on a pro-forma basis as higher corporate costs and slightly lower CDC earnings is offset by minor upgrades to&nbsp;Vodafone&nbsp;NZ (VNZ),&nbsp;Longroad&nbsp;and Retire Australia (RA). We leave our DPS forecasts unchanged as we continue to expect moderate growth from here in light of improving cash earnings;&nbsp;dividends will also now be 100% imputed.</li>
<li><strong>Target price</strong>:&nbsp;Increased to NZ$9.15 driven by VNZ,&nbsp;Longroad&nbsp;and RA.&nbsp;</li>
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<h3>Vodafone&nbsp;continues to execute; CDC should start to return to strong growth from 2H22</h3>
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<p>​​​​​​Our overall impression is that VNZ&nbsp;is starting to deliver on the anticipated margin expansion and that despite&nbsp;CDC's&nbsp;weak half (driven by major investments) we should see &gt;20%&nbsp;EBITDA growth in 2H22 and &gt;30%&nbsp;EBITDA growth in FY23. Our target price upgrade&nbsp;is predominantly driven by VNZ as we have moderately increased our earnings estimates and removed the 10% discount to Spark's (SPK) valuation that we previously applied.&nbsp;&nbsp;</p>
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<h3>Many a&nbsp;mickle&nbsp;makes a&nbsp;muckle</h3>
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<p>While VNZ and CDC tend to get the attention in&nbsp;IFT's&nbsp;results we think that the two smaller assets of Retire Australia (RA)&nbsp;and&nbsp;Longroad&nbsp;have&nbsp;the most potential to deliver a positive catalyst near-term. The 1H22 result&nbsp;was strong for both, but more importantly we see a path to value recognition. With regards to&nbsp;Longroad,&nbsp;IFT suggested that there had been significant interest in the&nbsp;asset and that it was possible that a new partner could be involved. We currently value&nbsp;Longroad&nbsp;at ~2x the independent valuation. Similarly for RA, after a long and difficult turnaround the asset now appears to be performing well. We believe RA could be sold at substantially above book value and have increased our valuation from 1x book value to 1.25x book value, a small discount to&nbsp;Arvida&nbsp;and Oceania.</p>
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Infratil 1H22 Result&nbsp;— Changing its Stripes

OUTPERFORM
Infratil&nbsp;(IFT) is changing its stripes. Four years ago its portfolio was dominated by the listed utilities&nbsp;Trustpower&nbsp;(TPW) and Tilt (~50%) along with the unlisted Wellington Airport (25%). All three assets had been owned for decades and a meaningful proportion of&nbsp;IFT's&nbsp;performance was driven by being levered into a rising market. Today, only 15% of&nbsp;IFT's&nbsp;assets are listed (TPW) and&nbsp;two-thirds of assets have been owned for less than 6&nbsp;years.&nbsp;IFT is transforming&nbsp;from a listed infrastructure fund to&nbsp;more resembling&nbsp;listed private equity.&nbsp;IFT's&nbsp;transformation has been rewarded by the market. We estimate that the "raw" discount has declined from&nbsp;being stable at&nbsp;around 30% four years ago to around 15% today, a motivated development in our view.&nbsp;If IFT keeps its asset velocity at current high levels, i.e. continues to opportunistically sell as well as buy assets, we believe this discount could close further. We retain our OUTPERFORM rating with an increased target price&nbsp;of NZ$9.15.


What's changed?&nbsp;



Earnings:&nbsp;Largely unchanged on a pro-forma basis as higher corporate costs and slightly lower CDC earnings is offset by minor upgrades to&nbsp;Vodafone&nbsp;NZ (VNZ),&nbsp;Longroad&nbsp;and Retire Australia (RA). We leave our DPS forecasts unchanged as we continue to expect moderate growth from here in light of improving cash earnings;&nbsp;dividends will also now be 100% imputed.
Target price:&nbsp;Increased to NZ$9.15 driven by VNZ,&nbsp;Longroad&nbsp;and RA.&nbsp;



Vodafone&nbsp;continues to execute; CDC should start to return to strong growth from 2H22


​​​​​​Our overall impression is that VNZ&nbsp;is starting to deliver on the anticipated margin expansion and that despite&nbsp;CDC's&nbsp;weak half (driven by major investments) we should see &gt;20%&nbsp;EBITDA growth in 2H22 and &gt;30%&nbsp;EBITDA growth in FY23. Our target price upgrade&nbsp;is predominantly driven by VNZ as we have moderately increased our earnings estimates and removed the 10% discount to Spark's (SPK) valuation that we previously applied.&nbsp;&nbsp;


Many a&nbsp;mickle&nbsp;makes a&nbsp;muckle


While VNZ and CDC tend to get the attention in&nbsp;IFT's&nbsp;results we think that the two smaller assets of Retire Australia (RA)&nbsp;and&nbsp;Longroad&nbsp;have&nbsp;the most potential to deliver a positive catalyst near-term. The 1H22 result&nbsp;was strong for both, but more importantly we see a path to value recognition. With regards to&nbsp;Longroad,&nbsp;IFT suggested that there had been significant interest in the&nbsp;asset and that it was possible that a new partner could be involved. We currently value&nbsp;Longroad&nbsp;at ~2x the independent valuation. Similarly for RA, after a long and difficult turnaround the asset now appears to be performing well. We believe RA could be sold at substantially above book value and have increased our valuation from 1x book value to 1.25x book value, a small discount to&nbsp;Arvida&nbsp;and Oceania.


Infratil: 1H22 Result — Changing Its Stripes

Infratil Ltd

Infratil: 1H22 Result — Changing Its Stripes