New Zealand Professional Investment Services Firm

Forsyth Barr

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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).

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New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>Mainfreight<br>FY22 Preview&nbsp;— COVID Booster</h2>
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<p><strong>NEUTRAL</strong></p>
<p>Mainfreight&nbsp;(MFT) will report an exceptionally strong FY22 result on 26 May 2022, boosted by a step change in Air &amp; Ocean profitability but also supported by above trend growth in Transport and Warehousing. We expect the company to announce underlying profit before tax (PBT) of NZ$471m, up +79% against the prior year. The freight rate&nbsp;super-cycle that has driven material increases in both sea and air freight rates over the past two years continues to be a major tailwind for the industry. We expect further earnings upgrades given Air &amp; Ocean's greater exposure to contract (still increasing) rather than spot rates (down from September 2021 peak). While&nbsp;MFT's&nbsp;one year forward PE (~19x) is materially lower than its recent peak of ~35x, it is at a modest premium to its closest international peers. We expect this gap to close with a post-result upgrade to FY23 EPS. NEUTRAL.&nbsp;</p>
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<h3>Key things to look out for in the FY22 result&nbsp;</h3>
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<li><strong>Air&nbsp;&amp; Ocean</strong>:&nbsp;A&amp;O weekly PBT was NZ$3.3m in 1H22 and climbed to NZ$5.9m in the first 17&nbsp;weeks of 2H22. While sea freight spot rates have fallen since their September 2021 peak, sea freight contract rates have continued to climb&nbsp;and air freight rates remain elevated.&nbsp;&nbsp;</li>
<li><strong>Other products</strong>:&nbsp;Transport and Warehousing will both report above trend growth through FY22, boosted by new customer wins and strong yields. Transport growth will likely have slowed over the final two months of the year due to the Omicron wave in NZ.&nbsp;</li>
<li><strong>Opex&nbsp;inflation</strong>:&nbsp;Rising cost pressures are a challenge in all markets, though responsive pricing and operating leverage from volume gains should mitigate any margin risk. The company&nbsp;actioned&nbsp;a +5% global wage&nbsp;and salary increase&nbsp;on 1 April 2022.&nbsp;&nbsp;</li>
<li><strong>​​​​​​​Capex</strong>:&nbsp;Guidance for FY22 of NZ$208m includes NZ$162m on land and buildings. MFT has a history of falling short of guidance due to delays in land purchases. Guidance for FY23 is NZ$290m&nbsp;focussed&nbsp;predominantly on New Zealand and Australian property projects. In light of balance sheet strength we expect MFT to begin 'owned' property projects in the US from FY25.&nbsp;</li>
<li><strong>Consensus upgrades to FY23</strong>:&nbsp;With the freight&nbsp;rate super-cycle&nbsp;staying higher for longer, providing A&amp;O&nbsp;a prolonged boost, we expect market estimates for FY23 will need to rise, partially moderated by the prospect of a slower global demand backdrop.&nbsp;</li>
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Mainfreight FY22 Preview&nbsp;— COVID Booster

NEUTRAL
Mainfreight&nbsp;(MFT) will report an exceptionally strong FY22 result on 26 May 2022, boosted by a step change in Air &amp; Ocean profitability but also supported by above trend growth in Transport and Warehousing. We expect the company to announce underlying profit before tax (PBT) of NZ$471m, up +79% against the prior year. The freight rate&nbsp;super-cycle that has driven material increases in both sea and air freight rates over the past two years continues to be a major tailwind for the industry. We expect further earnings upgrades given Air &amp; Ocean's greater exposure to contract (still increasing) rather than spot rates (down from September 2021 peak). While&nbsp;MFT's&nbsp;one year forward PE (~19x) is materially lower than its recent peak of ~35x, it is at a modest premium to its closest international peers. We expect this gap to close with a post-result upgrade to FY23 EPS. NEUTRAL.&nbsp;


Key things to look out for in the FY22 result&nbsp;



Air&nbsp;&amp; Ocean:&nbsp;A&amp;O weekly PBT was NZ$3.3m in 1H22 and climbed to NZ$5.9m in the first 17&nbsp;weeks of 2H22. While sea freight spot rates have fallen since their September 2021 peak, sea freight contract rates have continued to climb&nbsp;and air freight rates remain elevated.&nbsp;&nbsp;
Other products:&nbsp;Transport and Warehousing will both report above trend growth through FY22, boosted by new customer wins and strong yields. Transport growth will likely have slowed over the final two months of the year due to the Omicron wave in NZ.&nbsp;
Opex&nbsp;inflation:&nbsp;Rising cost pressures are a challenge in all markets, though responsive pricing and operating leverage from volume gains should mitigate any margin risk. The company&nbsp;actioned&nbsp;a +5% global wage&nbsp;and salary increase&nbsp;on 1 April 2022.&nbsp;&nbsp;
​​​​​​​Capex:&nbsp;Guidance for FY22 of NZ$208m includes NZ$162m on land and buildings. MFT has a history of falling short of guidance due to delays in land purchases. Guidance for FY23 is NZ$290m&nbsp;focussed&nbsp;predominantly on New Zealand and Australian property projects. In light of balance sheet strength we expect MFT to begin 'owned' property projects in the US from FY25.&nbsp;
Consensus upgrades to FY23:&nbsp;With the freight&nbsp;rate super-cycle&nbsp;staying higher for longer, providing A&amp;O&nbsp;a prolonged boost, we expect market estimates for FY23 will need to rise, partially moderated by the prospect of a slower global demand backdrop.&nbsp;



Mainfreight: FY22 Preview — COVID Booster

Mainfreight Ltd

Mainfreight: FY22 Preview — COVID Booster