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>Mainfreight<br>1H22 Preview — Boom!</h2>
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<p><strong>NEUTRAL</strong></p>
<p>Mainfreight&nbsp;(MFT) will report a very strong interim result on 11 November 2021, driven by the global freight super-cycle and supported by market share gains. We expect the company to announce underlying profit before tax of NZ$172m, up +68% against the prior year period. The strong uplift reflects booming Air &amp; Ocean performance with significant&nbsp;increases in sea freight rates which MFT is able to pass-on to international forwarding customers, at higher gross dollar margins. While we believe MFT is&nbsp;benefitting&nbsp;from a period of material over-earning, we expect over-earning to remain a feature over the next several years,&nbsp; albeit to a lessening extent as congestion in the global freight market gradually improves. Valuation&nbsp;support from global peers has eased with a clear de-rating from recent peak multiples. NEUTRAL.&nbsp;</p>
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<h3>Key things to look out for in the FY21 result</h3>
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<li><strong>Air &amp; Ocean (A&amp;O)</strong>:&nbsp;Will be the stand-out performer as already indicated in recent trading updates. We expect A&amp;O PBT of NZ$81m in the period, up from NZ$29m in the prior year. During August A&amp;O was generating ~NZ$4m of PBT per week, which we expect will have continued at a similar rate through September.&nbsp;</li>
<li><strong>Contract vs spot freight rates</strong>:&nbsp;The significant growth in A&amp;O profitability through 1H22 reflects the global sea freight super-cycle, which has seen average international spot rates increase &gt;+600%. This super-inflation reflects congestion impacted effective capacity. While a proportion of the sea freight industry operates at spot rates, the majority is contracted, and increasingly so. While contract rates are increasing&nbsp;they remain substantially lower than spot rates. Further growth in contract rates may delay the normalisation of rates and extend&nbsp;MFT's&nbsp;period&nbsp;of over-earning&nbsp; over the medium term.&nbsp;</li>
<li><strong>Transport and Warehousing also strong</strong>:&nbsp;We expect&nbsp;MFT's&nbsp;other products to have enjoyed strong profitability through 1H22 helped by positive demand from market share gains and economy reopening boosts. While New Zealand Transport volumes will have suffered through the evolving&nbsp;lockdown, strong performance from Australia and the Americas will more than compensate.&nbsp;&nbsp;</li>
<li><strong>Bonus provision</strong>:&nbsp;The FY21 result was impacted by a material increase in staff bonus provision, which was 2H21 weighted. The 1H22 bonus provision is likely to be up materially&nbsp;year on year.&nbsp;​​​​​​​</li>
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Mainfreight 1H22 Preview — Boom!

NEUTRAL
Mainfreight&nbsp;(MFT) will report a very strong interim result on 11 November 2021, driven by the global freight super-cycle and supported by market share gains. We expect the company to announce underlying profit before tax of NZ$172m, up +68% against the prior year period. The strong uplift reflects booming Air &amp; Ocean performance with significant&nbsp;increases in sea freight rates which MFT is able to pass-on to international forwarding customers, at higher gross dollar margins. While we believe MFT is&nbsp;benefitting&nbsp;from a period of material over-earning, we expect over-earning to remain a feature over the next several years,&nbsp; albeit to a lessening extent as congestion in the global freight market gradually improves. Valuation&nbsp;support from global peers has eased with a clear de-rating from recent peak multiples. NEUTRAL.&nbsp;


Key things to look out for in the FY21 result



Air &amp; Ocean (A&amp;O):&nbsp;Will be the stand-out performer as already indicated in recent trading updates. We expect A&amp;O PBT of NZ$81m in the period, up from NZ$29m in the prior year. During August A&amp;O was generating ~NZ$4m of PBT per week, which we expect will have continued at a similar rate through September.&nbsp;
Contract vs spot freight rates:&nbsp;The significant growth in A&amp;O profitability through 1H22 reflects the global sea freight super-cycle, which has seen average international spot rates increase &gt;+600%. This super-inflation reflects congestion impacted effective capacity. While a proportion of the sea freight industry operates at spot rates, the majority is contracted, and increasingly so. While contract rates are increasing&nbsp;they remain substantially lower than spot rates. Further growth in contract rates may delay the normalisation of rates and extend&nbsp;MFT's&nbsp;period&nbsp;of over-earning&nbsp; over the medium term.&nbsp;
Transport and Warehousing also strong:&nbsp;We expect&nbsp;MFT's&nbsp;other products to have enjoyed strong profitability through 1H22 helped by positive demand from market share gains and economy reopening boosts. While New Zealand Transport volumes will have suffered through the evolving&nbsp;lockdown, strong performance from Australia and the Americas will more than compensate.&nbsp;&nbsp;
Bonus provision:&nbsp;The FY21 result was impacted by a material increase in staff bonus provision, which was 2H21 weighted. The 1H22 bonus provision is likely to be up materially&nbsp;year on year.&nbsp;​​​​​​​



Mainfreight Ltd

Mainfreight: 1H22 Preview — Boom!