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

Mainfreight Flight to Quality&nbsp;

OUTPERFORM
Mainfreight (MFT) reported a preliminary 1H21 result in tandem with its Tauranga investor day, which suggests an upgrade to full year consensus estimates given market share wins and strong margin performance, particularly in Australia. ​​​​​​​It is a best-in-class operator that has strengthened its competitive position through COVID-19. Profit performance has improved through the half and the strong business momentum has continued through early October. Management is "cautiously optimistic" for the near term trading outlook, despite some supply chain challenges and ongoing government imposed restrictions in various geographies. However, it is also wary that the peak of the pre-Christmas seasonal uplift may not be as high as in recent years. We make material upgrades to our near term earnings estimates to reflect stronger than anticipated first half performance and reiterate our OUTPERFORM rating. MFT is due to report its full 1H21 result on 11 November 2020.&nbsp;&nbsp;


What's&nbsp;changed?&nbsp;



Earnings:&nbsp;+6% and +5% upgrades to FY21 and FY22 NPAT estimates respectively&nbsp;
Target price:&nbsp;Lifted to NZ$60 from NZ$47 to reflect (1) earnings upgrades, (2) cost of capital adjustment with revised WACC inputs, and (3) the material re-rating of&nbsp;MFT's&nbsp;key global freight peers



A 'phenomenal' first half


MFT reported preliminary 1H21 pre-tax profit (PBT) growth&nbsp;of +23% on revenue growth of +7%. In comparison, a​t its Annual Shareholder Meeting in July, the company reported revenue&nbsp;and PBT growth of +8% and +20% respectively for the first 17 weeks of the year. Profit growth remains strong and has continued into October. The demand backdrop has been better than previously feared (consistent with feedback from a host of international freight peers in recent weeks) and healthily supported by new customer wins.&nbsp;


Regionally robust


All regions except Europe (suffering from low warehouse inventory levels) experienced strong profit (PBT) growth through August/September: in particular we calculate that New Zealand grew +28%, Australia +46%, Americas +18%, Asia +59% and Europe -11%.&nbsp;While revenue growth was subdued at a group level (+5% for the same two month period on a constant currency basis), strong cost control, improved utilisation, and a favourable freight mix has helped expand margins.&nbsp;


Strong pipeline of new business; outlook improving


MFT is winning new business globally due to (1) its continued investment in sales, (2) a resurgent outsourcing trend, (3) competitor responses to COVID-19, and (4) its improving recognition by the market for service quality. Every region is experiencing high levels of new business (and record levels of inbound enquiries), which sets MFT up for a robust 2H21, irrespective of cyclical/COVID-19 headwinds.&nbsp;



Andy Bowley
andy.bowley@forsythbarr.co.nz
+64 4 495 8246





Scott Anderson
scott.anderson@forsythbarr.co.nz
+64 4 914 2219



Mainfreight Ltd

Mainfreight: Flight to Quality