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>Napier Port<br>Planning to Make up Leeway</h2>
<div></div>
<p><strong>NEUTRAL</strong></p>
<p>Napier Port's (NPH) third quarter results highlights earnings resilience despite the adverse impact of COVID-19. NPH had already released 3Q20 volumes last month, therefore, new information reflects (1) 3Q20 profitability, and (2) full year guidance. Third quarter profitability was down materially on the prior year due to a sharp revenue decline on a high fixed cost base; the former in part a function of the later timing of some pipfruit exports. NPH has reinstated FY20 NPAT guidance of "approximately NZ$20m", unchanged from the prospective financial information (PFI) guidance at the time of listing last year that was removed at the start of Alert Level 4. The earnings guidance suggests management confidence in a strong 4Q20, which given the seasonally slower container trade should be principally driven by log exports. NPH trades at a one year forward EV/EBITDA of ~17x, which, while at a material discount to larger peer, Port of Tauranga (POT), is fair given its lower return on capital outlook, in our opinion.</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/155/059/original/image_29548358831598400929648.png?1598400932" class="editor-image img-responsive" data-smartkarma-image-id="155059"></figure>
<div>
<h3>What's changed?</h3>
</div>
<div>
<ul>
<li>​​​​​​​<strong>Earnings</strong>:&nbsp;FY20 and FY21&nbsp;NPAT forecasts lifted +8% and +5% respectively</li>
<li><strong>Target Price</strong>: Raised to NZ$3.80, reflective of earnings upgrades and a lower WACC on revised inputs</li>
</ul>
</div>
<div>
<h3>Subdued 3Q activity;&nbsp;FY20 earnings guidance reinstated</h3>
</div>
<div>
<p>Pro&nbsp;forma&nbsp;NPAT&nbsp;was NZ$4.2m in 3Q20, down -44% from NZ$7.5m in 3Q19. The pro&nbsp;forma&nbsp;result excludes the NZ$2m received under the government's wage subsidy scheme.&nbsp;Both container (-14% against the prior year) and bulk cargo (-20%) revenues declined materially on weaker volumes.&nbsp;The reinstated&nbsp;NPAT&nbsp;guidance&nbsp;of "approximately NZ$20m", which also excludes the wage subsidy, implies strong 4Q20 earnings, which will be up materially on 4Q19.&nbsp;</p>
</div>
<div>
<h3>Dividend decision yet to be made</h3>
</div>
<div>
<p>NPH is yet to make a decision on its final dividend. The Board continues to say that it intends to pay a final dividend in accordance with its dividend policy (70%–90% of free cash flow), subject to the outlook at the time. The company suspended its interim dividend when it reported its 1H20 results on 26 May 2020, citing the uncertain outlook, although we suspect the decision was partly a function of its receipt of wage subsidies. We expect NPH to pay a final dividend of 5.1cps, ~42% of our FY20E free cash flow.</p>
</div>
<div>
<div>
<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>
</div>
</div>
<div>
<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>

Napier Port Planning to Make up Leeway

NEUTRAL
Napier Port's (NPH) third quarter results highlights earnings resilience despite the adverse impact of COVID-19. NPH had already released 3Q20 volumes last month, therefore, new information reflects (1) 3Q20 profitability, and (2) full year guidance. Third quarter profitability was down materially on the prior year due to a sharp revenue decline on a high fixed cost base; the former in part a function of the later timing of some pipfruit exports. NPH has reinstated FY20 NPAT guidance of "approximately NZ$20m", unchanged from the prospective financial information (PFI) guidance at the time of listing last year that was removed at the start of Alert Level 4. The earnings guidance suggests management confidence in a strong 4Q20, which given the seasonally slower container trade should be principally driven by log exports. NPH trades at a one year forward EV/EBITDA of ~17x, which, while at a material discount to larger peer, Port of Tauranga (POT), is fair given its lower return on capital outlook, in our opinion.


What's changed?



​​​​​​​Earnings:&nbsp;FY20 and FY21&nbsp;NPAT forecasts lifted +8% and +5% respectively
Target Price: Raised to NZ$3.80, reflective of earnings upgrades and a lower WACC on revised inputs



Subdued 3Q activity;&nbsp;FY20 earnings guidance reinstated


Pro&nbsp;forma&nbsp;NPAT&nbsp;was NZ$4.2m in 3Q20, down -44% from NZ$7.5m in 3Q19. The pro&nbsp;forma&nbsp;result excludes the NZ$2m received under the government's wage subsidy scheme.&nbsp;Both container (-14% against the prior year) and bulk cargo (-20%) revenues declined materially on weaker volumes.&nbsp;The reinstated&nbsp;NPAT&nbsp;guidance&nbsp;of "approximately NZ$20m", which also excludes the wage subsidy, implies strong 4Q20 earnings, which will be up materially on 4Q19.&nbsp;


Dividend decision yet to be made


NPH is yet to make a decision on its final dividend. The Board continues to say that it intends to pay a final dividend in accordance with its dividend policy (70%–90% of free cash flow), subject to the outlook at the time. The company suspended its interim dividend when it reported its 1H20 results on 26 May 2020, citing the uncertain outlook, although we suspect the decision was partly a function of its receipt of wage subsidies. We expect NPH to pay a final dividend of 5.1cps, ~42% of our FY20E free cash flow.



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: Planning to Make up Leeway