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>New Zealand Ports — Log Exports<br>Timber!</h2>
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<p>Port of&nbsp;Tauranga&nbsp;(POT) and Napier Port (NPH) are both materially exposed to the log export trade and&nbsp;have&nbsp;benefitted&nbsp;from growth in forestry output&nbsp;over the last decade. We expect this&nbsp;trend to continue in the short term as elevated levels of planting from&nbsp;the 1990s mature. We caution that export volumes will peak by 2026&nbsp;then decline as&nbsp;insufficient planting activity after the 1990s boom means total harvest volumes will fall, posing a risk to NPH in particular. The use of wood domestically is undergoing a transformation&nbsp;through the use of trees to sequester carbon, power boilers and as a low carbon building material alternative. Greater demand for non-traditional uses may be detrimental to export volumes&nbsp;but will boost near-term new forest plantings.</p>
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<h3>Log export volumes to increase but will not be sustained</h3>
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<p>The industry has a "Wall of Wood" to harvest that is nearing peak maturity and&nbsp;supported by the current strong demand from China. Reduced levels of planting after the 1990s boom creates a vacuum for exports.&nbsp;Furthermore,&nbsp;overreliance&nbsp;on China leaves the industry exposed to changing demand and potential geopolitical events.&nbsp;</p>
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<h3>Carbon capturing attention</h3>
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<p>Forestry has a key role to play in a shift to a net-zero emissions economy, whether through biofuels, carbon sequestering or as a building material. These alternative uses will strengthen the forestry industry making it more attractive to new investment. We expct planting area to increase as a result. Over the medium term this could be detrimental to export volumes but over the longer term could be very beneficial.</p>
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<h3>Near term port tailwinds; but headwinds longer term</h3>
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<p>We rate both POT and NPH as UNDERPERFORM with little differentiation between the two. POT is a superior business but trades at significant premium to NPH. Both are subject to rising bond rates, which are testing historic valuation parameters. Over the short term, elevated levels of maturing trees should continue to support log export growth for both ports. We estimate growth will peak mid-decade, as lower levels of maturing forests cannot support volumes. Beyond 5+ years POT is likely to make a smoother transition&nbsp; than NPH to the other side of the wall of wood as (1) it is less exposed to log exports, (2) it has more exposure to large-scale forest operators who supply more consistent log volumes, and (3) replanting activity has been higher in the Central North Island, where a large amount of POT's export volume originates. NPH's aspirations of securing out-of-catchment log volumes will be a more difficult transition, in our view.&nbsp;</p>
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New Zealand Ports — Log Exports Timber!


Port of&nbsp;Tauranga&nbsp;(POT) and Napier Port (NPH) are both materially exposed to the log export trade and&nbsp;have&nbsp;benefitted&nbsp;from growth in forestry output&nbsp;over the last decade. We expect this&nbsp;trend to continue in the short term as elevated levels of planting from&nbsp;the 1990s mature. We caution that export volumes will peak by 2026&nbsp;then decline as&nbsp;insufficient planting activity after the 1990s boom means total harvest volumes will fall, posing a risk to NPH in particular. The use of wood domestically is undergoing a transformation&nbsp;through the use of trees to sequester carbon, power boilers and as a low carbon building material alternative. Greater demand for non-traditional uses may be detrimental to export volumes&nbsp;but will boost near-term new forest plantings.


Log export volumes to increase but will not be sustained


The industry has a "Wall of Wood" to harvest that is nearing peak maturity and&nbsp;supported by the current strong demand from China. Reduced levels of planting after the 1990s boom creates a vacuum for exports.&nbsp;Furthermore,&nbsp;overreliance&nbsp;on China leaves the industry exposed to changing demand and potential geopolitical events.&nbsp;


Carbon capturing attention


Forestry has a key role to play in a shift to a net-zero emissions economy, whether through biofuels, carbon sequestering or as a building material. These alternative uses will strengthen the forestry industry making it more attractive to new investment. We expct planting area to increase as a result. Over the medium term this could be detrimental to export volumes but over the longer term could be very beneficial.


Near term port tailwinds; but headwinds longer term


We rate both POT and NPH as UNDERPERFORM with little differentiation between the two. POT is a superior business but trades at significant premium to NPH. Both are subject to rising bond rates, which are testing historic valuation parameters. Over the short term, elevated levels of maturing trees should continue to support log export growth for both ports. We estimate growth will peak mid-decade, as lower levels of maturing forests cannot support volumes. Beyond 5+ years POT is likely to make a smoother transition&nbsp; than NPH to the other side of the wall of wood as (1) it is less exposed to log exports, (2) it has more exposure to large-scale forest operators who supply more consistent log volumes, and (3) replanting activity has been higher in the Central North Island, where a large amount of POT's export volume originates. NPH's aspirations of securing out-of-catchment log volumes will be a more difficult transition, in our view.&nbsp;


New Zealand Ports — Log Exports Timber!

Port of Tauranga

New Zealand Ports — Log Exports Timber!