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).

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New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>Napier Port<br>Cargo Offsets Cruise</h2>
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<p><strong>UNDERPERFORM</strong></p>
<p>Napier Port (NPH) reported&nbsp;robust 1H21 cargo volume growth and upgraded FY21 earnings guidance. The better-than-expected first half trading is due to strong log export growth, largely offsetting the absence of cruise ship calls. Container volumes were flat relative to the prior year. FY21 EBITDA guidance was increased to NZ$39m–NZ$42m from NZ$34m–NZ$38m, a +13% upgrade at the midpoint. Despite NPH navigating short term industry congestion issues well, valuation headwinds remain in the form of (1) the return on capital dilution arising from 6 Wharf investment, and (2) the recent rise in bond rates. Trading at an ~18x one year forward EV/EBITDA and a ~34x&nbsp;one year forward PE, we view NPH as expensive and retain our UNDERPERFORM rating. NPH is due to release its 1H21 results on 25 May 2021.</p>
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<h3>What's changed?&nbsp;</h3>
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<li><strong>Earnings</strong>:&nbsp;FY21 EBITDA&nbsp;forecast&nbsp;increased by +9%. FY22 and FY23 largely unchanged</li>
<li><strong>Target price</strong>:&nbsp;Increased +3% to NZ$3.10</li>
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<h3>1H21 earnings pre-released and FY21 guidance upgraded</h3>
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<p>NPH&nbsp;pre-released 1H21 EBITDA of "approximately NZ$21.0m", down from NZ$21.7m in 1H20. The company&nbsp;also upgraded&nbsp;guidance by&nbsp;+13% at the midpoint to a new range of between NZ$39m and NZ$42m,&nbsp;reflecting management's confidence in the near-term outlook and better than expected cargo volumes in recent months. We have increased our FY21 EBITDA forecast to NZ$40.3m due to higher&nbsp;volume expectations, and now assume 2.8mT of log exports for the year.</p>
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<h3>Log export growth offsets lack of cruise ships</h3>
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<p>NPH grew log exports by +21% in 1H21 against the prior year, driven by the sharp recovery in&nbsp;log export prices.&nbsp;NPH's&nbsp;container volumes were flat on 1H20, albeit this is better than expected given seasonal labour shortages for the pip-fruit harvest&nbsp;and ongoing global supply chain congestion, reducing the availability&nbsp;of empties. Total vessel calls were down -20% due to the lack of cruise ships.</p>
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<h3>6 Wharf returns dilution</h3>
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<div id="m_8565856172428640060i2yph">
<p>NPH's 6 Wharf development is on track for completion in late CY22. 6 Wharf should provide some operational cost benefits given current port congestion, but overall we expect it to dent profits due to the associated depreciation and interest expense when commissioned. In the meantime, ongoing 6 Wharf capex will continue to increase capital employed and therefore dampen returns. Our current modelling suggests that pre-tax return on capital employed (ROCE) falls to ~6.8% in FY23. We anticipate NPH will use a combination of pricing and targeted volume initiatives to drive a recovery in ROCE over the medium to longer term.&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>
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<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>
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Napier Port Cargo Offsets Cruise

UNDERPERFORM
Napier Port (NPH) reported&nbsp;robust 1H21 cargo volume growth and upgraded FY21 earnings guidance. The better-than-expected first half trading is due to strong log export growth, largely offsetting the absence of cruise ship calls. Container volumes were flat relative to the prior year. FY21 EBITDA guidance was increased to NZ$39m–NZ$42m from NZ$34m–NZ$38m, a +13% upgrade at the midpoint. Despite NPH navigating short term industry congestion issues well, valuation headwinds remain in the form of (1) the return on capital dilution arising from 6 Wharf investment, and (2) the recent rise in bond rates. Trading at an ~18x one year forward EV/EBITDA and a ~34x&nbsp;one year forward PE, we view NPH as expensive and retain our UNDERPERFORM rating. NPH is due to release its 1H21 results on 25 May 2021.


What's changed?&nbsp;



Earnings:&nbsp;FY21 EBITDA&nbsp;forecast&nbsp;increased by +9%. FY22 and FY23 largely unchanged
Target price:&nbsp;Increased +3% to NZ$3.10



1H21 earnings pre-released and FY21 guidance upgraded


NPH&nbsp;pre-released 1H21 EBITDA of "approximately NZ$21.0m", down from NZ$21.7m in 1H20. The company&nbsp;also upgraded&nbsp;guidance by&nbsp;+13% at the midpoint to a new range of between NZ$39m and NZ$42m,&nbsp;reflecting management's confidence in the near-term outlook and better than expected cargo volumes in recent months. We have increased our FY21 EBITDA forecast to NZ$40.3m due to higher&nbsp;volume expectations, and now assume 2.8mT of log exports for the year.


Log export growth offsets lack of cruise ships


NPH grew log exports by +21% in 1H21 against the prior year, driven by the sharp recovery in&nbsp;log export prices.&nbsp;NPH's&nbsp;container volumes were flat on 1H20, albeit this is better than expected given seasonal labour shortages for the pip-fruit harvest&nbsp;and ongoing global supply chain congestion, reducing the availability&nbsp;of empties. Total vessel calls were down -20% due to the lack of cruise ships.


6 Wharf returns dilution


NPH's 6 Wharf development is on track for completion in late CY22. 6 Wharf should provide some operational cost benefits given current port congestion, but overall we expect it to dent profits due to the associated depreciation and interest expense when commissioned. In the meantime, ongoing 6 Wharf capex will continue to increase capital employed and therefore dampen returns. Our current modelling suggests that pre-tax return on capital employed (ROCE) falls to ~6.8% in FY23. We anticipate NPH will use a combination of pricing and targeted volume initiatives to drive a recovery in ROCE over the medium to longer term.&nbsp;



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





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



Napier Port

Napier Port: Cargo Offsets Cruise