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 FY21— Blue Sea and Blue Sky&nbsp;

NEUTRAL
Mainfreight's (MFT) very strong FY21 result was impressively driven by all regions and all products. The thriving freight market, particularly the air and sea freight segments (both benefitting from substantial rates increases), has complimented further customer wins, to drive an acceleration in growth through the year following a very tough, lockdown impacted start. The company's increasing global reach is providing greater capability, scale benefits, a bigger addressable market, and geographic diversification. We expect strong earnings growth to continue through FY22 as buoyant industry conditions remain, however, cyclical headwinds may be a feature from FY23. Trading at ~32x one year forward PE on our revised estimates, broadly on par with its closest global peers, we believe MFT is fairly valued. NEUTRAL.&nbsp;


What's changed?&nbsp;



Earnings:&nbsp;Broadly unchanged in FY22; modest upgrades to FY23
Target price:&nbsp;Increased to NZ$79 from NZ$77&nbsp;



Impressive and consistent growth


MFT has now achieved seven consecutive half year periods&nbsp;of double digit earnings growth; the run continues. We expect&nbsp;strong growth to remain a feature near term given (1) ongoing market share gains, and (2) the favourable freight industry cyclical backdrop&nbsp; playing out&nbsp;for at least another 12 months. With 2H21 business momentum continuing in FY22-year-to-date and&nbsp;very weak prior year comparatives due to&nbsp;lockdown&nbsp;restrictions, we expect a very positive trading update at the ASM on 29&nbsp;July 2021.&nbsp;


Value over volume


Air &amp; Ocean revenue growth of +30% during FY21&nbsp;contributed to a +52% increase in&nbsp;its profit before tax (PBT). Volume data is not yet available yet we suspect international freight unit profitability (i.e. profit per tonne or TEU) has increased significantly.&nbsp;Over time the favourable market conditions will subside, in our opinion,&nbsp;as shipping congestion eases and airfreight capacity comes back when&nbsp;passenger travel resumes. However, this is likely an FY23 story, not FY22.&nbsp;


Balance sheet headroom&nbsp;


Strong cash generation, a 40% dividend payout and reduced capex due to a pause in activity during COVID-19, lowers net debt to NZ$102m. MFT's balance sheet has significant capacity to fund further growth (acquisitions remain very unlikely), increase its payout (possible), fund a capital return (unlikely) and/or significantly increase its&nbsp; property acquisition strategy in new markets (likely over the medium term with Europe before the US). Notwithstanding a higher rate of capex ahead, we forecast MFT will move into a net cash position during FY22.&nbsp;



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





Matt Noland
matt.noland@forsythbarr.co.nz
+64 9 368 0134



Mainfreight: FY21— Blue Sea and Blue Sky

Mainfreight Ltd

Mainfreight: FY21— Blue Sea and Blue Sky