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>Pulling the Pricing Lever: Upgrade to NEUTRAL</h2>
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<p><strong>NEUTRAL</strong></p>
<p>Napier Port (NPH) reported a solid FY21 result with robust profit growth despite the temporary loss of cruise income. Growth will accelerate in FY22, driven principally by significant pricing initiatives in order to assist in recovering its 6 Wharf investment. Management has pulled the pricing lever earlier than we had previously anticipated. A stepped increase in its container infrastructure levy ahead of 6 Wharf completion has been timed well, coinciding with elevated sea freight rates, thereby having a relatively minor percentage impact on shippers. The key question for investors: is there more pricing to come? Management is giving little away but history suggests yes. We agree with history and assume a further levy increase in FY23. NPH’s discount to Port of&nbsp;Tauranga&nbsp;(POT) has widened and its earnings outlook improved over our outlook period; we upgrade our rating to NEUTRAL from UNDERPERFORM. &nbsp;&nbsp;​​​​​​​</p>
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<h3>What's changed?&nbsp;</h3>
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<li><strong>Earnings</strong>:&nbsp;EBITDA estimate lifted&nbsp;+14% in FY22, +13% in FY23, +8% in FY24</li>
<li><strong>Target price</strong>:&nbsp; Raised to NZ$3.10 from NZ$2.90</li>
<li><strong>Rating</strong>:&nbsp;Upgraded to NEUTRAL from UNDERPERFORM&nbsp;</li>
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<h3>Management proving conservative with expectations</h3>
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<p>To under promise and over deliver is a sensible investor relations strategy that NPH appears to be following. FY21 EBITDA ended up +4% above the top end of management’s guidance range. It has also tightened both the timing and cost of 6 Wharf. We thus assume that EBITDA growth guidance for FY22 is conservative; our revised estimates imply +14% growth, to be primarily driven by pricing.&nbsp;​​​​​​​</p>
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<h3>Near term outlook boosted by pricing initiatives&nbsp;​​​​​​​</h3>
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<p>NPH’s FY22 pricing is led by a material uplift (~+131%) in its container&nbsp;infrastructure levy, which in addition to a tariff rate increase&nbsp;of ~+3%, should result in average container pricing growth of +11%. Management is unable to confirm whether this pricing will be followed by further levy increases to help generate a higher return on 6 Wharf; we assume that a further, but smaller, increase will follow in FY23 once 6 Wharf is operational. We bring forward&nbsp;our pricing expectations, materially upgrading near term earnings.&nbsp;</p>
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<h3>Valuation fair</h3>
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<p>NPH is trading on&nbsp;a one year forward EV/EBITDA multiple of ~14x and a PE of ~24x. Its valuation discount to POT has widened in recent weeks. The trough in its return on capital profile, in light of the 6 Wharf investment, is no longer as deep as previously anticipated given the recent pricing moves. This, combined with an improved near term growth outlook, means we are more comfortable with NPH commanding a higher valuation multiple.&nbsp;​​​​​​​</p>
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Napier Port Pulling the Pricing Lever: Upgrade to NEUTRAL

NEUTRAL
Napier Port (NPH) reported a solid FY21 result with robust profit growth despite the temporary loss of cruise income. Growth will accelerate in FY22, driven principally by significant pricing initiatives in order to assist in recovering its 6 Wharf investment. Management has pulled the pricing lever earlier than we had previously anticipated. A stepped increase in its container infrastructure levy ahead of 6 Wharf completion has been timed well, coinciding with elevated sea freight rates, thereby having a relatively minor percentage impact on shippers. The key question for investors: is there more pricing to come? Management is giving little away but history suggests yes. We agree with history and assume a further levy increase in FY23. NPH’s discount to Port of&nbsp;Tauranga&nbsp;(POT) has widened and its earnings outlook improved over our outlook period; we upgrade our rating to NEUTRAL from UNDERPERFORM. &nbsp;&nbsp;​​​​​​​


What's changed?&nbsp;



Earnings:&nbsp;EBITDA estimate lifted&nbsp;+14% in FY22, +13% in FY23, +8% in FY24
Target price:&nbsp; Raised to NZ$3.10 from NZ$2.90
Rating:&nbsp;Upgraded to NEUTRAL from UNDERPERFORM&nbsp;



Management proving conservative with expectations


To under promise and over deliver is a sensible investor relations strategy that NPH appears to be following. FY21 EBITDA ended up +4% above the top end of management’s guidance range. It has also tightened both the timing and cost of 6 Wharf. We thus assume that EBITDA growth guidance for FY22 is conservative; our revised estimates imply +14% growth, to be primarily driven by pricing.&nbsp;​​​​​​​


Near term outlook boosted by pricing initiatives&nbsp;​​​​​​​


NPH’s FY22 pricing is led by a material uplift (~+131%) in its container&nbsp;infrastructure levy, which in addition to a tariff rate increase&nbsp;of ~+3%, should result in average container pricing growth of +11%. Management is unable to confirm whether this pricing will be followed by further levy increases to help generate a higher return on 6 Wharf; we assume that a further, but smaller, increase will follow in FY23 once 6 Wharf is operational. We bring forward&nbsp;our pricing expectations, materially upgrading near term earnings.&nbsp;


Valuation fair


NPH is trading on&nbsp;a one year forward EV/EBITDA multiple of ~14x and a PE of ~24x. Its valuation discount to POT has widened in recent weeks. The trough in its return on capital profile, in light of the 6 Wharf investment, is no longer as deep as previously anticipated given the recent pricing moves. This, combined with an improved near term growth outlook, means we are more comfortable with NPH commanding a higher valuation multiple.&nbsp;​​​​​​​


Napier Port: Pulling the Pricing Lever: Upgrade to NEUTRAL