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</h2>
<p><strong>FY20 Preview —&nbsp;Undulating Road</strong></p>
<p><strong>OUTPERFORM</strong></p>
<p>We expect Mainfreight (MFT) to report robust earnings growth in its FY20 result on 27 May 2020, driven by modest sales growth and further margin expansion. We forecast underlying NPAT growth of ~+11% against FY19, implying +11% through 2H19 and a slowdown later in the period from initial COVID-19 activity drop. MFT is currently trading at a ~20x two year forward PE, on par with key larger global peers DSV Panalpina and Old Dominion Freight line. The near-term trading environment is likely to be subdued due to COVID-19 and the resulting economic and supply chain disruption, however, we think MFT is poised to strengthen its competitive position, as it did through the global financial crisis. OUTPERFORM.</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/135/605/original/image_15093065221590366003450.png?1590366004" class="editor-image img-responsive" data-smartkarma-image-id="135605"></figure>
<p><strong>Key things to look for in FY20 result</strong></p>
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<li><strong>Continued revenue growth</strong>:&nbsp;Our expectation of +6% constant currency revenue growth&nbsp;in FY20 is below that of FY19 (+11%). but still indicates new business wins and cross-selling benefits.&nbsp;&nbsp;</li>
<li><strong>Resilient&nbsp;margins</strong>:&nbsp;We expect&nbsp;MFT&nbsp;will report another year of robust margins, despite an industry slowdown. Our forecasts imply overall EBITDA margin&nbsp;increasing by +30bps, driven predominantly by the Americas and Europe.</li>
<li><strong>Near term outlook</strong>:&nbsp;Management indicated in its April trading update that its New Zealand business had been materially impacted by Alert Level Four. Industry peers have highlighted the challenges in the international forwarding segment.&nbsp;</li>
<li><strong>Cost initiatives</strong>:&nbsp;MFT&nbsp;has already announced cost cutting measures, which involve; (1) deferral of salary reviews and a hiring freeze, (2) a cut to directors' fees and the Managing Director's salary, and (3) reduction in unnecessary discretionary spending. Further initiatives are likely.</li>
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<p><strong>Outlook</strong></p>
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<p>MFT's global peers have experienced further revenue declines in their latest quarterly results. The near term backdrop will deteriorate further into calendar 2Q given COVID-19 disruption, in our opinion.&nbsp;</p>
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<div><strong>Andy Bowley</strong></div>
<div><a href="mailto:andy.bowley@forsythbarr.co.nz" target="_blank" rel="noopener">andy.bowley@forsythbarr.co.nz</a></div>
<div>+64 4 495 8246</div>
<div></div>
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<div>
<div><strong>Scott Anderson</strong></div>
<div><a href="mailto:scott.anderson@forsythbarr.co.nz" target="_blank" rel="noopener">scott.anderson@forsythbarr.co.<wbr>nz</a></div>
<div>+64 4 914 2219</div>
</div>
</div>

Mainfreight
FY20 Preview —&nbsp;Undulating Road
OUTPERFORM
We expect Mainfreight (MFT) to report robust earnings growth in its FY20 result on 27 May 2020, driven by modest sales growth and further margin expansion. We forecast underlying NPAT growth of ~+11% against FY19, implying +11% through 2H19 and a slowdown later in the period from initial COVID-19 activity drop. MFT is currently trading at a ~20x two year forward PE, on par with key larger global peers DSV Panalpina and Old Dominion Freight line. The near-term trading environment is likely to be subdued due to COVID-19 and the resulting economic and supply chain disruption, however, we think MFT is poised to strengthen its competitive position, as it did through the global financial crisis. OUTPERFORM.

Key things to look for in FY20 result


Continued revenue growth:&nbsp;Our expectation of +6% constant currency revenue growth&nbsp;in FY20 is below that of FY19 (+11%). but still indicates new business wins and cross-selling benefits.&nbsp;&nbsp;
Resilient&nbsp;margins:&nbsp;We expect&nbsp;MFT&nbsp;will report another year of robust margins, despite an industry slowdown. Our forecasts imply overall EBITDA margin&nbsp;increasing by +30bps, driven predominantly by the Americas and Europe.
Near term outlook:&nbsp;Management indicated in its April trading update that its New Zealand business had been materially impacted by Alert Level Four. Industry peers have highlighted the challenges in the international forwarding segment.&nbsp;
Cost initiatives:&nbsp;MFT&nbsp;has already announced cost cutting measures, which involve; (1) deferral of salary reviews and a hiring freeze, (2) a cut to directors' fees and the Managing Director's salary, and (3) reduction in unnecessary discretionary spending. Further initiatives are likely.


Outlook

MFT's global peers have experienced further revenue declines in their latest quarterly results. The near term backdrop will deteriorate further into calendar 2Q given COVID-19 disruption, in our opinion.&nbsp;



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





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



Mainfreight: FY20 Preview — Undulating Road

Mainfreight Ltd

Mainfreight: FY20 Preview — Undulating Road