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>Ship Happens</h2>
<div></div>
<p><strong>NEUTRAL</strong></p>
<p>Napier Port (NPH) has materially downgraded its FY22 earnings guidance while publishing challenged 2Q22 cargo volumes. Its revised guidance range implies an EBITDA decline of -4% to -13% against FY21. NPH's apparent volume and earnings volatility stems from its cargo concentration, with heavy exposure to forestry and pip-fruit exports. While container shipping service changes may have influenced some of the volume decline, we expect a large proportion was temporary/one-off and will return in future periods. As a result, our forecast earnings declines are more concentrated in FY22 than later years. While NPH trades at a material discount (~-28% on one year forward PE, ~-35% on EV/EBITDA, and ~-41% on a P/AFFO basis) to Port of Tauranga (POT), we believe this is justified in light of POT's superior growth and return on capital outlook. ​​​​​​​NEUTRAL.&nbsp;</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/268/300/original/image_70227531021649726701785.png?1649726702" class="editor-image img-responsive" data-smartkarma-image-id="268300"></figure>
<div>
<h3>What's changed?&nbsp;</h3>
</div>
<div id="m_3858334892314480058iwrmo3">
<ul>
<li><strong>Earnings</strong>:&nbsp;Material downgrades through our outlook period. FY22 EBITDA down -17%</li>
<li><strong>Target price</strong>:&nbsp;Lowered to NZ$2.85 (from NZ$3.10)</li>
</ul>
</div>
<div>
<h3>Revised guidance</h3>
</div>
<div id="m_3858334892314480058ihxlh">
<p>NPH now expects FY22 EBITDA of NZ$38m–NZ$42m, down from the previous +10% lift on FY21 EBITDA of NZ$43.8m (implying NZ$48.2m). Having also provided 1H22 EBITDA guidance of approximately NZ$16.4m in its trading update, the new FY22 guidance range suggests +5% EBITDA growth in 2H22 at the mid-point. The volume backdrop may remain challenged through the second half, albeit likely more than mitigated by the full period benefit of the material infrastructure levy increase from 1 October 2021.</p>
</div>
<div>
<h3>Volume headwinds</h3>
</div>
<div id="m_3858334892314480058iun5t">
<p>The weak 2Q22 volume backdrop reflects a number of dynamics impacting both containers and bulk cargo. First, a seasonal labour shortage and Omicron absenteeism is impacting the labour available for many of NPH's cargo owners. Second, shipping service changes with Maersk's Trident/OC1 now bypassing NPH; meaning a reduced vessel count and some cargo transiting via other ports. Third, extreme weather conditions have impacted vessels and cargo arriving on port.&nbsp;</p>
</div>
<div>
<h3>Valuation fair</h3>
</div>
<div id="m_3858334892314480058i04pb">
<p>NPH is trading on a one year forward EV/EBITDA of ~14x, P/AFFO of ~17x and PE of ~26x. These&nbsp;appear fair relative to POT and&nbsp;NPH's&nbsp;other&nbsp;real asset peers. With&nbsp;NPH's&nbsp;pricing moves earlier in FY22, the outlook is now more reliant on cargo volumes to improve the company's return on capital (ROIC). The weak 2Q22 will dampen FY22 ROIC (5.1%; sub-WACC on our estimates), though we anticipate a&nbsp;ROIC in excess of WACC from FY23.&nbsp;</p>
</div>

Napier Port Ship Happens

NEUTRAL
Napier Port (NPH) has materially downgraded its FY22 earnings guidance while publishing challenged 2Q22 cargo volumes. Its revised guidance range implies an EBITDA decline of -4% to -13% against FY21. NPH's apparent volume and earnings volatility stems from its cargo concentration, with heavy exposure to forestry and pip-fruit exports. While container shipping service changes may have influenced some of the volume decline, we expect a large proportion was temporary/one-off and will return in future periods. As a result, our forecast earnings declines are more concentrated in FY22 than later years. While NPH trades at a material discount (~-28% on one year forward PE, ~-35% on EV/EBITDA, and ~-41% on a P/AFFO basis) to Port of Tauranga (POT), we believe this is justified in light of POT's superior growth and return on capital outlook. ​​​​​​​NEUTRAL.&nbsp;


What's changed?&nbsp;



Earnings:&nbsp;Material downgrades through our outlook period. FY22 EBITDA down -17%
Target price:&nbsp;Lowered to NZ$2.85 (from NZ$3.10)



Revised guidance


NPH now expects FY22 EBITDA of NZ$38m–NZ$42m, down from the previous +10% lift on FY21 EBITDA of NZ$43.8m (implying NZ$48.2m). Having also provided 1H22 EBITDA guidance of approximately NZ$16.4m in its trading update, the new FY22 guidance range suggests +5% EBITDA growth in 2H22 at the mid-point. The volume backdrop may remain challenged through the second half, albeit likely more than mitigated by the full period benefit of the material infrastructure levy increase from 1 October 2021.


Volume headwinds


The weak 2Q22 volume backdrop reflects a number of dynamics impacting both containers and bulk cargo. First, a seasonal labour shortage and Omicron absenteeism is impacting the labour available for many of NPH's cargo owners. Second, shipping service changes with Maersk's Trident/OC1 now bypassing NPH; meaning a reduced vessel count and some cargo transiting via other ports. Third, extreme weather conditions have impacted vessels and cargo arriving on port.&nbsp;


Valuation fair


NPH is trading on a one year forward EV/EBITDA of ~14x, P/AFFO of ~17x and PE of ~26x. These&nbsp;appear fair relative to POT and&nbsp;NPH's&nbsp;other&nbsp;real asset peers. With&nbsp;NPH's&nbsp;pricing moves earlier in FY22, the outlook is now more reliant on cargo volumes to improve the company's return on capital (ROIC). The weak 2Q22 will dampen FY22 ROIC (5.1%; sub-WACC on our estimates), though we anticipate a&nbsp;ROIC in excess of WACC from FY23.&nbsp;


Napier Port

Napier Port: Ship Happens