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</h2>
FY19 — Safely Navigated
Napier Port (NPH) reported a solid first result as a listed company with no surprises and has kept to its IPO script for the FY20 outlook. Pro-forma FY19 EBITDA growth of +9% stems from a combination of volume, pricing, and cargo mix improvements. In contrast, the earnings growth outlook is more subdued for FY20 given log export volumes are likely to be hindered by the recent decline in log prices. With NPH trading at ~15x one year forward EV/EBITDA and EV/IC of ~2.4x, we believe the risk/reward is evenly matched. We retain a NEUTRAL rating.
What’s changed?
<ul>
<li>Earnings: Small uplift to FY20 and FY21 estimates</li>
<li>Target Price: Increased to NZ$3.05 from NZ$3.00</li>
</ul>
FY19 marginally ahead of PFI
NPH reported FY19 underlying NPAT +3% ahead of PFI (prospective financial information issued ahead of the IPO). While the margin for error was limited given the late stage nature of PFI forecast issuance through FY19 and the stable nature of port cargo flows, it was still important for the company to meet/exceed its first PFI hurdle.
Container mix benefit
Having already provided a volume update last month, enhanced granularity highlighted an improved container mix in FY19, given +10% growth in reefer exports compared to total container volume growth of +2%. This explains the higher average rate per container achieved in the year relative to PFI forecasts. Most containerised categories were up year on year, the exception being canned food exports.
Capex deferred
The capex outlay for FY20 increases by ~NZ$9m due to several small project deferrals. Construction of 6 Wharf will commence in 2Q20 and is due to be completed in 2022. Project phasing is on plan with ~NZ$50m due to be spent in FY20 out of a total NZ$173m–NZ$190m cost. Total capex should amount to ~NZ$80m in each of the next three years.
NPH sticks to FY20 PFI forecasts
Management is retaining its FY20 PFI forecasts, which imply +1% EBITDA growth and flat NPAT performance relative to FY19. Our revised estimates suggest it will do slightly better. In summary, we expect FY20 to be (1) a year of growth, albeit marginal, given the constraints in the log export trade, and (2) transformational given the commencement of 6 Wharf construction.
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Investment View
NPH offers investors exposure to a long term infrastructure asset which has a favourable catchment in Hawke’s Bay. We expect cargo growth momentum to continue over the medium term supported by positive outlooks for both the forestry and pipfruit sectors. NPH’s pricing power will be key in improving economic returns following the significant capital investment in a new wharf. While NPH trades at a (justifiably) large earnings valuation discount to Port of Tauranga (POT), we believe it is fairly priced at a modest premium to its smaller sector peers. NEUTRAL.&nbsp;
</div>
Andy Bowley andy.bowley@forsythbarr.co.nz +64 4 495 8246

Napier Port
FY19 — Safely Navigated
Napier Port (NPH) reported a solid first result as a listed company with no surprises and has kept to its IPO script for the FY20 outlook. Pro-forma FY19 EBITDA growth of +9% stems from a combination of volume, pricing, and cargo mix improvements. In contrast, the earnings growth outlook is more subdued for FY20 given log export volumes are likely to be hindered by the recent decline in log prices. With NPH trading at ~15x one year forward EV/EBITDA and EV/IC of ~2.4x, we believe the risk/reward is evenly matched. We retain a NEUTRAL rating.
What’s changed?

Earnings: Small uplift to FY20 and FY21 estimates
Target Price: Increased to NZ$3.05 from NZ$3.00

FY19 marginally ahead of PFI
NPH reported FY19 underlying NPAT +3% ahead of PFI (prospective financial information issued ahead of the IPO). While the margin for error was limited given the late stage nature of PFI forecast issuance through FY19 and the stable nature of port cargo flows, it was still important for the company to meet/exceed its first PFI hurdle.
Container mix benefit
Having already provided a volume update last month, enhanced granularity highlighted an improved container mix in FY19, given +10% growth in reefer exports compared to total container volume growth of +2%. This explains the higher average rate per container achieved in the year relative to PFI forecasts. Most containerised categories were up year on year, the exception being canned food exports.
Capex deferred
The capex outlay for FY20 increases by ~NZ$9m due to several small project deferrals. Construction of 6 Wharf will commence in 2Q20 and is due to be completed in 2022. Project phasing is on plan with ~NZ$50m due to be spent in FY20 out of a total NZ$173m–NZ$190m cost. Total capex should amount to ~NZ$80m in each of the next three years.
NPH sticks to FY20 PFI forecasts
Management is retaining its FY20 PFI forecasts, which imply +1% EBITDA growth and flat NPAT performance relative to FY19. Our revised estimates suggest it will do slightly better. In summary, we expect FY20 to be (1) a year of growth, albeit marginal, given the constraints in the log export trade, and (2) transformational given the commencement of 6 Wharf construction.

Investment View
NPH offers investors exposure to a long term infrastructure asset which has a favourable catchment in Hawke’s Bay. We expect cargo growth momentum to continue over the medium term supported by positive outlooks for both the forestry and pipfruit sectors. NPH’s pricing power will be key in improving economic returns following the significant capital investment in a new wharf. While NPH trades at a (justifiably) large earnings valuation discount to Port of Tauranga (POT), we believe it is fairly priced at a modest premium to its smaller sector peers. NEUTRAL.&nbsp;

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

Napier Port

Napier Port: FY19 — Safely Navigated