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

Port of Tauranga
Cargo Light, Valuation Heavy
UNDERPERFORM
Port of Tauranga's (POT) share price has defied both ours and the consensus view on valuation for an extended period of time. It is a high quality asset that could materially benefit from industry structure change, given uncertainty about the future of Ports of Auckland (POAL). POT has taken share in the upper North Island over the longer term, and will likely continue to do so in the absence of supply chain certainty for users of POAL, in our opinion. This provides support to a higher level of cargo, revenue and profit growth over the medium to long term. COVID-19 has impacted near term, albeit the foregone cargo is largely forestry related and therefore deferred rather than lost. Higher growth and lower bond yields support a higher target price, yet there remains a sizeable gap between our revised NZ$6.20 and the current share price. UNDERPERFORM.&nbsp;


What's&nbsp;changed?



NPAT: FY20 -3% and FY21 -2% reflecting COVID-19 impact from Alert Level 4&nbsp;
Target price: Raised to NZ$6.20 to reflect higher medium/long term growth assumptions&nbsp;



Export logs


Stats NZ data suggests&nbsp;POT's&nbsp;log exports fell -22% in FY20 reflecting (1) the impact of weaker prices in mid-2019, (2) the closure of Chinese ports in February 2020, and (3) the non-essential nature of forestry during Alert Level 4. This is consistent with our previous assumption and implies ~5.5mT of log exports. The outlook for log exports is mixed given lower prices but an impending wall of wood.&nbsp;


Container growth has softened


Ministry of Transport data for the nine months to March suggest&nbsp;POT's&nbsp;container volumes were flat against the prior year, compared to +3% through the first six months. We expect some further softening in 4Q20 to reflect a decline in 'non-essential' exports, including processed forestry products.&nbsp;


Upper North Island uncertainty&nbsp;


The Upper North Island Supply Chain Strategy will be reliant on future governments to take it&nbsp;forward given the forthcoming election. We expect&nbsp;it will likely be less of a political priority in light of&nbsp;COVID-19 and therefore believe that the&nbsp; current status&nbsp;quo&nbsp;is likely to continue for the foreseeable future.&nbsp;


Valuation premium&nbsp;


POT trades at an elevated one year forward PE multiple of ~51x despite ~20% of its earnings stemming from lower multiple associate/JV entities other than the core port business. While we believe POT deserves a valuation premium (to the market) we question how big the premium should be, particularly in an environment when trade cargo trends are subdued.&nbsp;



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





Scott Anderson
scott.anderson@forsythbarr.co.nz
+64 4 914 2219



Port of Tauranga: Cargo Light, Valuation Heavy