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Forsyth Barr

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New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>Mainfreight 1H21 Result Initial Thoughts</h2>
The new information stemming from Mainfreight’s (MFT) 1H21 result is management’s increased confidence in the trading outlook, reflecting (1) continued strong 2H-to-date performance and (2) more certainty around the pre-Christmas seasonal peak. The result itself was unsurprisingly in-line with pre-released numbers from its investor day last month: revenue +7% and PBT +23%. The increased confidence in the outlook is reflected in the interim dividend of 30c (+20%), and commentary on “greater certainty to further invest in our network”. Outlook commentary by region is as follows:
<ul>
<li>New Zealand: “Trading in October and now into November continues this improvement, with pre-Christmas volumes expected to increase further and the benefit of new customers assisting.”</li>
<li>Australia: “Expectations are for a further increase in freight volumes pre-Christmas, and as a consequence of Victoria reopening after 112 days of lockdown.”</li>
<li>Asia: “Freight revenues leading into Christmas remain elevated, and we expect the current profit and revenue trends to continue.”</li>
<li>Europe: “Revenue growth will be aided by an amount of new business gained, and we expect improved performance through the balance of the financial year. While several European countries have recently enforced further lockdowns, activity remains consistent at pre-lockdown levels.”</li>
<li>The Americas: “A difficult first half for our American operations, however better results in October, and now into November, indicate an improved second six months.”</li>
</ul>
Our view
The positive earnings momentum that MFT has enjoyed since the depths of COVID-19 is set to continue. We expect further market consensus earnings upgrades following this result. Current FY21 NPAT consensus of NZ$174m implies +17.6% growth, but just +13.8% through 2H21. OUTPERFORM.
MFT’s 1H21 result (NZ$m)
<table class="table table-striped">
<tbody>
<tr>
<td style="width: 90.8pt;">
&nbsp;
</td>
<td style="width: 53.8pt;">
1H20
</td>
<td style="width: 51.8pt;">
1H21
</td>
<td style="width: 51.8pt;">
Change
</td>
</tr>
<tr>
<td style="width: 90.8pt;">
Sales revenue
</td>
<td style="width: 53.8pt;">
1,500.5
</td>
<td style="width: 51.8pt;">
1,608.9
</td>
<td style="width: 51.8pt;">
7.2%
</td>
</tr>
<tr>
<td style="width: 90.8pt;">
Profit before tax
</td>
<td style="width: 53.8pt;">
82.9
</td>
<td style="width: 51.8pt;">
102.3
</td>
<td style="width: 51.8pt;">
23.5%
</td>
</tr>
<tr>
<td style="width: 90.8pt;">
Reported NPAT
</td>
<td style="width: 53.8pt;">
59.1
</td>
<td style="width: 51.8pt;">
72.9
</td>
<td style="width: 51.8pt;">
23.3%
</td>
</tr>
<tr>
<td style="width: 90.8pt;">
Underlying NPAT
</td>
<td style="width: 53.8pt;">
59.1
</td>
<td style="width: 51.8pt;">
72.9
</td>
<td style="width: 51.8pt;">
23.3%
</td>
</tr>
<tr>
<td style="width: 90.8pt;">
Underlying EPS (cents)
</td>
<td style="width: 53.8pt;">
58.7
</td>
<td style="width: 51.8pt;">
72.4
</td>
<td style="width: 51.8pt;">
23.3%
</td>
</tr>
<tr>
<td style="width: 90.8pt;">
Interim DPS (cents)
</td>
<td style="width: 53.8pt;">
25.0
</td>
<td style="width: 51.8pt;">
30.0
</td>
<td style="width: 51.8pt;">
20.0%
</td>
</tr>
</tbody>
</table>
Source: MFT, 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:1683007618314503035&amp;th=175b3e830be9837b&amp;view=fimg&amp;sz=s0-l75-ft&amp;attbid=ANGjdJ8FZsJaT3XCo3WHaMsIMx0YrERmrMlg3S908mRW7tCHVaTOAH74Ci-moA1zoBU5a3GQlhAdeg1GbfgHp9ZQrLucFbdjR1TiExFEnGY6pfzWtdZRQlOhLXP_prw&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

Mainfreight 1H21 Result Initial Thoughts
The new information stemming from Mainfreight’s (MFT) 1H21 result is management’s increased confidence in the trading outlook, reflecting (1) continued strong 2H-to-date performance and (2) more certainty around the pre-Christmas seasonal peak. The result itself was unsurprisingly in-line with pre-released numbers from its investor day last month: revenue +7% and PBT +23%. The increased confidence in the outlook is reflected in the interim dividend of 30c (+20%), and commentary on “greater certainty to further invest in our network”. Outlook commentary by region is as follows:

New Zealand: “Trading in October and now into November continues this improvement, with pre-Christmas volumes expected to increase further and the benefit of new customers assisting.”
Australia: “Expectations are for a further increase in freight volumes pre-Christmas, and as a consequence of Victoria reopening after 112 days of lockdown.”
Asia: “Freight revenues leading into Christmas remain elevated, and we expect the current profit and revenue trends to continue.”
Europe: “Revenue growth will be aided by an amount of new business gained, and we expect improved performance through the balance of the financial year. While several European countries have recently enforced further lockdowns, activity remains consistent at pre-lockdown levels.”
The Americas: “A difficult first half for our American operations, however better results in October, and now into November, indicate an improved second six months.”

Our view
The positive earnings momentum that MFT has enjoyed since the depths of COVID-19 is set to continue. We expect further market consensus earnings upgrades following this result. Current FY21 NPAT consensus of NZ$174m implies +17.6% growth, but just +13.8% through 2H21. OUTPERFORM.
MFT’s 1H21 result (NZ$m)




&nbsp;


1H20


1H21


Change




Sales revenue


1,500.5


1,608.9


7.2%




Profit before tax


82.9


102.3


23.5%




Reported NPAT


59.1


72.9


23.3%




Underlying NPAT


59.1


72.9


23.3%




Underlying EPS (cents)


58.7


72.4


23.3%




Interim DPS (cents)


25.0


30.0


20.0%




Source: MFT, 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

Mainfreight: 1H21 Result Initial Thoughts

Mainfreight Ltd

Mainfreight: 1H21 Result Initial Thoughts