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>Normalisation? Still Waiting</h2>
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<p>Trading conditions look likely to remain turbulent for the global transport sector in the near term. Substantial increases in fuel prices are impacting all modes in addition to other inflationary pressures; aviation, with lower pricing power, is most exposed. In contrast, fuel pass-through mechanisms mitigate the margin risk for many freight players across parcels, pallets and containers. Notwithstanding higher jet fuel prices, the outlook for the recovery of air travel is improving as border restrictions ease. We expect the initial recovery in air passenger demand will be driven by the visiting friends and family segment, as the NZ Government accelerates the border reopening, with a full recovery longer dated, particularly for long haul. Additional aviation capacity also provides more belly space for air cargo, which should in time reduce support for higher airfreight rates. Congestion remains a major issue for sea freight, meaning elevated rates will likely continue at least in the short term, though anecdotal feedback suggests demand is softening on certain trade lanes. Parcel operator Freightways (FRE; OUTPERFORM) remains our preferred exposure in the sector, followed by freight and logistics player Mainfreight (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> FRE has a growing track record and a number of strategic and operational levers in place, which we believe is deserving of a premium valuation multiple relative to the market. The company's portfolio of businesses with various industry exposures has proven beneficial throughout the pandemic. We expect the easing of COVID-19 related restrictions should help to drive business-to-business (B2B) volume normalisation through FY23.&nbsp; Pricing power provides an inflation hedge, particularly in FRE's parcel operations.&nbsp;</p>
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<p><span style="text-decoration: underline;">Mainfreight&nbsp;(MFT):</span>&nbsp;MFT's&nbsp;earnings momentum has&nbsp;continued through recent months. It's Air &amp;&nbsp; Ocean operations&nbsp;are a beneficiary of the freight rate super cycle, which continues to be the key driver of earnings growth in the near term. As the&nbsp;supercycle&nbsp;unwinds we anticipate a more benign outlook for medium term earnings growth&nbsp;as Air &amp; Ocean headwinds are offset by above trend profit growth in&nbsp;MFT's&nbsp;Transport and Warehousing operations.&nbsp;</p>
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Transport Trends Normalisation? Still Waiting


Trading conditions look likely to remain turbulent for the global transport sector in the near term. Substantial increases in fuel prices are impacting all modes in addition to other inflationary pressures; aviation, with lower pricing power, is most exposed. In contrast, fuel pass-through mechanisms mitigate the margin risk for many freight players across parcels, pallets and containers. Notwithstanding higher jet fuel prices, the outlook for the recovery of air travel is improving as border restrictions ease. We expect the initial recovery in air passenger demand will be driven by the visiting friends and family segment, as the NZ Government accelerates the border reopening, with a full recovery longer dated, particularly for long haul. Additional aviation capacity also provides more belly space for air cargo, which should in time reduce support for higher airfreight rates. Congestion remains a major issue for sea freight, meaning elevated rates will likely continue at least in the short term, though anecdotal feedback suggests demand is softening on certain trade lanes. Parcel operator Freightways (FRE; OUTPERFORM) remains our preferred exposure in the sector, followed by freight and logistics player Mainfreight (MFT; NEUTRAL).


Sector preferences


Freightways&nbsp;(FRE): FRE has a growing track record and a number of strategic and operational levers in place, which we believe is deserving of a premium valuation multiple relative to the market. The company's portfolio of businesses with various industry exposures has proven beneficial throughout the pandemic. We expect the easing of COVID-19 related restrictions should help to drive business-to-business (B2B) volume normalisation through FY23.&nbsp; Pricing power provides an inflation hedge, particularly in FRE's parcel operations.&nbsp;


Mainfreight&nbsp;(MFT):&nbsp;MFT's&nbsp;earnings momentum has&nbsp;continued through recent months. It's Air &amp;&nbsp; Ocean operations&nbsp;are a beneficiary of the freight rate super cycle, which continues to be the key driver of earnings growth in the near term. As the&nbsp;supercycle&nbsp;unwinds we anticipate a more benign outlook for medium term earnings growth&nbsp;as Air &amp; Ocean headwinds are offset by above trend profit growth in&nbsp;MFT's&nbsp;Transport and Warehousing operations.&nbsp;


Transport Trends: Normalisation? Still Waiting

Freightways Ltd

Transport Trends: Normalisation? Still Waiting