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>Transport Trends<br>A Long Runway for Full Aviation Takeoff</h2>
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<p>Sentiment continues to dominate fundamentals in the transport sector, particularly in aviation names, as the recovery phase of the COVID-19 pandemic plays out. Demand strength is evident across most transport modes, although extended booking windows and ongoing border restrictions are delaying the recovery in international aviation. In contrast, domestic air travel has strengthened further, given buoyant leisure demand, more than offsetting a subdued corporate market. Global shipping remains pressured from congestion issues and robust freight demand, disrupting ports and supply chains. Until conditions normalise, shipping lines and freight forwarders will continue to generate attractive returns at the expense of cargo owners and ultimately consumers. Inflationary forces are at play in freight and should remain a feature for at least the next 12 months. Inflation is also a key theme in parcels, given further CPI+ price increases being actioned by key players. Segment volumes remain robust, supported by the favourable ecommerce/online shopping trend. We retain a preference for parcel operator Freightways (FRE; OUTPERFORM) followed by freight and logistics player Mainfreight (MFT; NEUTRAL) in the sector.&nbsp;</p>
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<h3>Sector preferences</h3>
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<p><span><strong>FRE</strong></span>&nbsp;has justifiably re-rated over the past nine months, yet at ~22x one-year forward PE&nbsp;it still trades at a small discount to the domestic market. With an attractive organic earnings growth outlook, driven by its core parcels operations (an acceleration in volume growth and margin expansion from its pricing for effort initiative), and scope for value-accretive&nbsp;acquisitions, we believe FRE offers a higher-quality and better growth story than it has&nbsp;previously&nbsp;and at a reasonable price.&nbsp;</p>
<p><span><strong>MFT</strong></span>&nbsp; provides a best-in-class freight exposure at a price consistent with its closest international peers (DSV Panalpina, Old Dominion Freight Line, and Kuehne &amp; Nagel). Market share wins and favourable global freight pricing conditions are boosting near-term performance. However, we accept the latter may unwind, at least partially, as global congestion issues ease which could slow medium term earnings growth.&nbsp;</p>
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<div><strong>Andy Bowley</strong></div>
<div><a href="mailto:andy.bowley@forsythbarr.co.nz" target="_blank" rel="noopener">andy.bowley@forsythbarr.co.nz</a></div>
<div>+64 4 495 8246</div>
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<div><strong>Matt Noland</strong></div>
<div><a href="mailto:matt.noland@forsythbarr.co.nz" target="_blank" rel="noopener">matt.noland@forsythbarr.co.nz</a></div>
<div>+64 9 368 0134</div>
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Transport Trends A Long Runway for Full Aviation Takeoff


Sentiment continues to dominate fundamentals in the transport sector, particularly in aviation names, as the recovery phase of the COVID-19 pandemic plays out. Demand strength is evident across most transport modes, although extended booking windows and ongoing border restrictions are delaying the recovery in international aviation. In contrast, domestic air travel has strengthened further, given buoyant leisure demand, more than offsetting a subdued corporate market. Global shipping remains pressured from congestion issues and robust freight demand, disrupting ports and supply chains. Until conditions normalise, shipping lines and freight forwarders will continue to generate attractive returns at the expense of cargo owners and ultimately consumers. Inflationary forces are at play in freight and should remain a feature for at least the next 12 months. Inflation is also a key theme in parcels, given further CPI+ price increases being actioned by key players. Segment volumes remain robust, supported by the favourable ecommerce/online shopping trend. We retain a preference for parcel operator Freightways (FRE; OUTPERFORM) followed by freight and logistics player Mainfreight (MFT; NEUTRAL) in the sector.&nbsp;


Sector preferences


FRE&nbsp;has justifiably re-rated over the past nine months, yet at ~22x one-year forward PE&nbsp;it still trades at a small discount to the domestic market. With an attractive organic earnings growth outlook, driven by its core parcels operations (an acceleration in volume growth and margin expansion from its pricing for effort initiative), and scope for value-accretive&nbsp;acquisitions, we believe FRE offers a higher-quality and better growth story than it has&nbsp;previously&nbsp;and at a reasonable price.&nbsp;
MFT&nbsp; provides a best-in-class freight exposure at a price consistent with its closest international peers (DSV Panalpina, Old Dominion Freight Line, and Kuehne &amp; Nagel). Market share wins and favourable global freight pricing conditions are boosting near-term performance. However, we accept the latter may unwind, at least partially, as global congestion issues ease which could slow medium term earnings growth.&nbsp;



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





Matt Noland
matt.noland@forsythbarr.co.nz
+64 9 368 0134



Transport Trends: A Long Runway for Full Aviation Takeoff

Freightways Ltd

Transport Trends: A Long Runway for Full Aviation Takeoff