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>Property For Industry</h2>
Upgrade to OUTPERFORM
OUTPERFORM
In our sector report Real Estate Reflections dated 26 March 2020, we looked at sector gearing and provided an update on our preferred LPVs. We also provided some thoughts on how investors should be positioned as uncertainty persists, and a reminder of what happened during the global financial crisis (GFC) and how things may be 'different this cycle'. We also upgraded our PFI investment rating from NEUTRAL to OUTPERFORM.
<table class="table table-striped"><colgroup><col> <col> <col> <col> <col> <col> <col span="2"> <col span="2"> <col> <col></colgroup>
<tbody>
<tr>
<td style="width: 48pt;">NZX Code</td>
<td style="width: 48pt;">PFI</td>
<td style="width: 48pt;">Financials:Dec/</td>
<td style="width: 40.2pt;">19A</td>
<td style="width: 42.6pt;">20E</td>
<td style="width: 43.2pt;">21E</td>
<td style="width: 48pt;">22E</td>
<td style="width: 48pt;">Valuation (x)</td>
<td style="width: 42.6pt;">19A</td>
<td style="width: 42.6pt;">20E</td>
<td style="width: 48pt;">21E</td>
<td style="width: 42.6pt;">22E</td>
</tr>
<tr>
<td style="width: 48pt;">Share price</td>
<td style="width: 48pt;">NZ$2.06</td>
<td style="width: 48pt;">NPAT* (NZ$m)</td>
<td style="text-align: left; width: 40.2pt;">42.6&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">43.8&nbsp;</td>
<td style="text-align: left; width: 43.2pt;">43.7&nbsp;</td>
<td style="text-align: left; width: 48pt;">44.5&nbsp;</td>
<td style="width: 48pt;">EV/EBITDA</td>
<td style="text-align: left; width: 42.6pt;">19.2&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">19.2&nbsp;</td>
<td style="text-align: left; width: 48pt;">19.1&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">18.8&nbsp;</td>
</tr>
<tr>
<td style="width: 48pt;">Target price</td>
<td style="width: 48pt;">NZ$2.15</td>
<td style="width: 48pt;">EPS* (NZc)</td>
<td style="text-align: left; width: 40.2pt;">8.5&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">8.8&nbsp;</td>
<td style="text-align: left; width: 43.2pt;">8.8&nbsp;</td>
<td style="text-align: left; width: 48pt;">8.9&nbsp;</td>
<td style="width: 48pt;">EV/EBIT</td>
<td style="text-align: left; width: 42.6pt;">19.2&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">19.2&nbsp;</td>
<td style="text-align: left; width: 48pt;">19.1&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">18.8&nbsp;</td>
</tr>
<tr>
<td style="width: 48pt;">Risk rating</td>
<td style="width: 48pt;">Low</td>
<td style="width: 48pt;">EPS growth* (%)</td>
<td style="text-align: left; width: 40.2pt;">1.9</td>
<td style="text-align: left; width: 42.6pt;">2.8</td>
<td style="text-align: left; width: 43.2pt;">-0.1</td>
<td style="text-align: left; width: 48pt;">1.9&nbsp;</td>
<td style="width: 48pt;">PE</td>
<td style="text-align: left; width: 42.6pt;">24.1&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">23.5&nbsp;</td>
<td style="text-align: left; width: 48pt;">23.5&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">23.1&nbsp;</td>
</tr>
<tr>
<td style="width: 48pt;">Issued shares</td>
<td style="width: 48pt;">498.7m</td>
<td style="width: 48pt;">DPS (NZc)</td>
<td style="text-align: left; width: 40.2pt;">7.6&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">7.7&nbsp;</td>
<td style="text-align: left; width: 43.2pt;">7.8&nbsp;</td>
<td style="text-align: left; width: 48pt;">7.9&nbsp;</td>
<td style="width: 48pt;">Price/NTA</td>
<td style="text-align: left; width: 42.6pt;">1.0&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">1.0&nbsp;</td>
<td style="text-align: left; width: 48pt;">1.0&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">0.9&nbsp;</td>
</tr>
<tr>
<td style="width: 48pt;">Market cap</td>
<td style="width: 48pt;">NZ$1,027m</td>
<td style="width: 48pt;">Imputation (%)</td>
<td style="text-align: left; width: 40.2pt;">100</td>
<td style="text-align: left; width: 42.6pt;">100</td>
<td style="text-align: left; width: 43.2pt;">100</td>
<td style="text-align: left; width: 48pt;">100</td>
<td style="width: 48pt;">Cash div yld (%)</td>
<td style="text-align: left; width: 42.6pt;">3.7</td>
<td style="text-align: left; width: 42.6pt;">3.7</td>
<td style="text-align: left; width: 48pt;">3.8&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">3.8&nbsp;</td>
</tr>
<tr>
<td style="width: 48pt;">Avg daily turnover</td>
<td style="width: 48pt;">273.5k (NZ$623k)</td>
<td colspan="3" style="width: 130.8pt;">*Based on normalised profits</td>
<td style="width: 43.2pt;"></td>
<td style="width: 48pt;"></td>
<td style="width: 48pt;">Gross div yld (%)</td>
<td style="text-align: left; width: 42.6pt;">5.3</td>
<td style="text-align: left; width: 42.6pt;">5.3</td>
<td style="text-align: left; width: 48pt;">5.4&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">5.4&nbsp;</td>
</tr>
</tbody>
</table>
Industrial well positioned
Good, well located, industrial property has proven to be fairly resilient through the cycle, typically with a lower level of vacancy than office, but it has had a massive re-rating in terms of asset values over the last eight years. The industrial space in the NZ LPV market is GMT at 100% (although that includes some office space in industrial parks), PFI ~90%, ARG ~50% and SPG ~30%. Most are typically Auckland based and/or good quality.
PFI's&nbsp;smaller average asset size means it is popular with private investors and this should continue to be the case, depending on private balance sheets. Small asset size also makes it helpful for divesting assets to reduce debt in a slower market, although is not helpful for cap rates. Quality listed industrial occupancy only dropped to around the ~95% level last cycle.
Upgraded from NEUTRAL to OUTPERFORM
PFI has a strong track record and is well managed, and has an appealing internal management structure. As mentioned above, its relatively smaller asset size helps with managing liquidity if needed and it successfully did this through the GFC period, without raising new capital. It has a defensive asset base, essentially being prime and secondary Auckland industrial assets. PFI has occupancy of 99% and a WALT of 5.4 years. A deep occupier market and change of use optionality over the medium term provides defensive attributes for the industrial market. PFI is geared to 28% versus a sector average of ~31% and has recently renegotiated its debt facilities. We have not changed our forecasts or NZ$2.15 target price.
Jeremy Simpson CFA jeremy.simpson@forsythbarr.co.nz +64 9 368 0022

Property For Industry
Upgrade to OUTPERFORM
OUTPERFORM
In our sector report Real Estate Reflections dated 26 March 2020, we looked at sector gearing and provided an update on our preferred LPVs. We also provided some thoughts on how investors should be positioned as uncertainty persists, and a reminder of what happened during the global financial crisis (GFC) and how things may be 'different this cycle'. We also upgraded our PFI investment rating from NEUTRAL to OUTPERFORM.
         


NZX Code
PFI
Financials:Dec/
19A
20E
21E
22E
Valuation (x)
19A
20E
21E
22E


Share price
NZ$2.06
NPAT* (NZ$m)
42.6&nbsp;
43.8&nbsp;
43.7&nbsp;
44.5&nbsp;
EV/EBITDA
19.2&nbsp;
19.2&nbsp;
19.1&nbsp;
18.8&nbsp;


Target price
NZ$2.15
EPS* (NZc)
8.5&nbsp;
8.8&nbsp;
8.8&nbsp;
8.9&nbsp;
EV/EBIT
19.2&nbsp;
19.2&nbsp;
19.1&nbsp;
18.8&nbsp;


Risk rating
Low
EPS growth* (%)
1.9
2.8
-0.1
1.9&nbsp;
PE
24.1&nbsp;
23.5&nbsp;
23.5&nbsp;
23.1&nbsp;


Issued shares
498.7m
DPS (NZc)
7.6&nbsp;
7.7&nbsp;
7.8&nbsp;
7.9&nbsp;
Price/NTA
1.0&nbsp;
1.0&nbsp;
1.0&nbsp;
0.9&nbsp;


Market cap
NZ$1,027m
Imputation (%)
100
100
100
100
Cash div yld (%)
3.7
3.7
3.8&nbsp;
3.8&nbsp;


Avg daily turnover
273.5k (NZ$623k)
*Based on normalised profits


Gross div yld (%)
5.3
5.3
5.4&nbsp;
5.4&nbsp;



Industrial well positioned
Good, well located, industrial property has proven to be fairly resilient through the cycle, typically with a lower level of vacancy than office, but it has had a massive re-rating in terms of asset values over the last eight years. The industrial space in the NZ LPV market is GMT at 100% (although that includes some office space in industrial parks), PFI ~90%, ARG ~50% and SPG ~30%. Most are typically Auckland based and/or good quality.
PFI's&nbsp;smaller average asset size means it is popular with private investors and this should continue to be the case, depending on private balance sheets. Small asset size also makes it helpful for divesting assets to reduce debt in a slower market, although is not helpful for cap rates. Quality listed industrial occupancy only dropped to around the ~95% level last cycle.
Upgraded from NEUTRAL to OUTPERFORM
PFI has a strong track record and is well managed, and has an appealing internal management structure. As mentioned above, its relatively smaller asset size helps with managing liquidity if needed and it successfully did this through the GFC period, without raising new capital. It has a defensive asset base, essentially being prime and secondary Auckland industrial assets. PFI has occupancy of 99% and a WALT of 5.4 years. A deep occupier market and change of use optionality over the medium term provides defensive attributes for the industrial market. PFI is geared to 28% versus a sector average of ~31% and has recently renegotiated its debt facilities. We have not changed our forecasts or NZ$2.15 target price.
Jeremy Simpson CFA jeremy.simpson@forsythbarr.co.nz +64 9 368 0022


Property For Industry: Upgrade to OUTPERFORM