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>In Search of Normalisation; Maybe a Year Early&nbsp;</h2>
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<p>2022 looks set to start off as yet another turbulent year for the global transport sector, with supply chains battling congestion&nbsp;and international border settings remaining sensitive to the&nbsp;emergence of new COVID-19 variants. The international freight rate super-cycle, led by sea freight,&nbsp;is unlikely to unwind quickly, albeit a gradual softening of spot rates and further lift in contract rates is a sensible base case assumption.&nbsp;Aviation continues to remain challenged, but with international borders&nbsp;gradually loosening, even New&nbsp;Zealand's&nbsp;in early 2022 (touch wood), and improving forward booking data, we expect additional capacity will be met with strong pent-up demand. Notwithstanding recent restrictions related to the new Omicron variant, we expect the gradual&nbsp;resumption of air travel to continue&nbsp;through 2022. Our preferred exposure in the sector remains parcel operator&nbsp;Freightways&nbsp;(FRE; OUTPERFORM) followed by freight and logistics player&nbsp;Mainfreight&nbsp;(MFT; NEUTRAL).</p>
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<h3>Sector preferences</h3>
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<p><span style="text-decoration: underline;">Freightways&nbsp;(FRE):</span> The resilience of FRE's portfolio of industry exposures and strong competitive positions was demonstrated in the company's 1Q22 trading update, under the backdrop of the recent Australian and New Zealand lockdowns. Looking through short-term COVID-19 impacts we expect a further step-up in profitability driven by: (1) ecommerce-driven business-to-<wbr>consumer volume growth with market share gains, (2) rational pricing strategies to ensure effort is rewarded, and (3) scope for further earnings&nbsp;accretive&nbsp;M&amp;A having successfully bedded in Big Chill.&nbsp; &nbsp;&nbsp;</p>
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<p><span style="text-decoration: underline;">Mainfreight&nbsp;(MFT):</span>&nbsp;The global freight rate super-cycle continues to support an element of over-earning for MFT, although the company's greater exposure to contract rates (which lag spot rate movements and&nbsp;are still rising) should allow MFT to continue leveraging the&nbsp;freight rate super-cycle.&nbsp;Once the buoyant operating environment subsides we anticipate ~35% of FY22 earnings will prove unsustainable&nbsp;and the medium term growth profile may flatten. That said, looking through short-term volatility,&nbsp;MFT's&nbsp;core business continues to reinforce&nbsp;its high-quality attributes, capitalising on favourable conditions by&nbsp;growing market share and expanding its footprint.</p>
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Transport Trends In Search of Normalisation; Maybe a Year Early&nbsp;


2022 looks set to start off as yet another turbulent year for the global transport sector, with supply chains battling congestion&nbsp;and international border settings remaining sensitive to the&nbsp;emergence of new COVID-19 variants. The international freight rate super-cycle, led by sea freight,&nbsp;is unlikely to unwind quickly, albeit a gradual softening of spot rates and further lift in contract rates is a sensible base case assumption.&nbsp;Aviation continues to remain challenged, but with international borders&nbsp;gradually loosening, even New&nbsp;Zealand's&nbsp;in early 2022 (touch wood), and improving forward booking data, we expect additional capacity will be met with strong pent-up demand. Notwithstanding recent restrictions related to the new Omicron variant, we expect the gradual&nbsp;resumption of air travel to continue&nbsp;through 2022. Our preferred exposure in the sector remains parcel operator&nbsp;Freightways&nbsp;(FRE; OUTPERFORM) followed by freight and logistics player&nbsp;Mainfreight&nbsp;(MFT; NEUTRAL).


Sector preferences


Freightways&nbsp;(FRE): The resilience of FRE's portfolio of industry exposures and strong competitive positions was demonstrated in the company's 1Q22 trading update, under the backdrop of the recent Australian and New Zealand lockdowns. Looking through short-term COVID-19 impacts we expect a further step-up in profitability driven by: (1) ecommerce-driven business-to-consumer volume growth with market share gains, (2) rational pricing strategies to ensure effort is rewarded, and (3) scope for further earnings&nbsp;accretive&nbsp;M&amp;A having successfully bedded in Big Chill.&nbsp; &nbsp;&nbsp;


Mainfreight&nbsp;(MFT):&nbsp;The global freight rate super-cycle continues to support an element of over-earning for MFT, although the company's greater exposure to contract rates (which lag spot rate movements and&nbsp;are still rising) should allow MFT to continue leveraging the&nbsp;freight rate super-cycle.&nbsp;Once the buoyant operating environment subsides we anticipate ~35% of FY22 earnings will prove unsustainable&nbsp;and the medium term growth profile may flatten. That said, looking through short-term volatility,&nbsp;MFT's&nbsp;core business continues to reinforce&nbsp;its high-quality attributes, capitalising on favourable conditions by&nbsp;growing market share and expanding its footprint.


Transport Trends: In Search of Normalisation; Maybe a Year Early

Freightways Ltd

Transport Trends: In Search of Normalisation; Maybe a Year Early