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</h2>
<p><strong>Range of Recovery Rates</strong></p>
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<p>The transport sector has been hard hit by COVID-19, with aviation most impacted given border measures in place and lower demand. The domestic aviation recovery has commenced but capacity remains materially down on pre COVID-19 levels. Freight, in contrast, has experienced a strong bounce and is now at, or above, prior year levels. However, we are wary that pent-up demand is masking the ongoing economic consequences of the government restrictions in recent months; the current backdrop may represent a false dawn. Earnings guidance is reappearing as we head towards June balance dates given greater certainty for profit outcomes. Air New Zealand (AIR; UNDERPERFORM) reinstated its FY20 guidance last week. We expect other transport companies to provide earnings updates over the next week or two in order to align market expectations. Our preferred sector exposure is Mainfreight (MFT; OUTPERFORM). While we recognise MFT is exposed to global economic headwinds, its ability to win new customers and cross-sell across existing customers places it in a strong competitive position.</p>
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<h3>Key transport trends and themes</h3>
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<p>We pay particular attention to a number of enduring trends in this edition of Transport Trends, that are reshaping the broader industry backdrop as a result of&nbsp;COVID-19:</p>
<ul>
<li><strong>Parcel volumes</strong>&nbsp;spiked during Alert Levels 4 and 3 as a result of the surge in e-commerce. May 2020 data for online sales volumes and&nbsp;industry feedback indicates that the volume of business-to-consumer (B2C) parcels has remained elevated through Alert Level 2&nbsp;despite the re-opening of traditional retail stores.</li>
<li><strong>Domestic aviation</strong>&nbsp;fell significantly through Alert Levels 4 and 3 as travel was limited to essential personnel only. Air New&nbsp;Zealand's&nbsp;(AIR) capacity was cut back to a skeleton operation, with&nbsp;Jetstar&nbsp;stopping all domestic routes. Domestic capacity is now returning but remains materially lower than in the prior year.</li>
<li><strong>Heavy vehicle traffic&nbsp;volumes</strong> declined sharply under Alert Level 4 but have since recovered, with volumes now above prior year levels. We are wary that the recovery is partly a function of pent-up demand, and supply chain restocking, and may be masking weaker underlying demand.</li>
</ul>
<div class="content-highlight">
<p>Sector preferences<br>We summarise our sector stock ratings as follows:</p>
<ul>
<li>OUTPERFORM: Mainfreight</li>
<li>NEUTRAL: Auckland Airport, Freightways, Napier Port</li>
<li>UNDERPERFORM: Air New Zealand, Port of Tauranga</li>
</ul>
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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>Scott Anderson</strong></div>
<div><a href="mailto:scott.anderson@forsythbarr.co.nz" target="_blank" rel="noopener">scott.anderson@forsythbarr.co.<wbr>nz</a></div>
<div>+64 4 914 2219</div>
</div>
</div>

Transport Trends
Range of Recovery Rates

The transport sector has been hard hit by COVID-19, with aviation most impacted given border measures in place and lower demand. The domestic aviation recovery has commenced but capacity remains materially down on pre COVID-19 levels. Freight, in contrast, has experienced a strong bounce and is now at, or above, prior year levels. However, we are wary that pent-up demand is masking the ongoing economic consequences of the government restrictions in recent months; the current backdrop may represent a false dawn. Earnings guidance is reappearing as we head towards June balance dates given greater certainty for profit outcomes. Air New Zealand (AIR; UNDERPERFORM) reinstated its FY20 guidance last week. We expect other transport companies to provide earnings updates over the next week or two in order to align market expectations. Our preferred sector exposure is Mainfreight (MFT; OUTPERFORM). While we recognise MFT is exposed to global economic headwinds, its ability to win new customers and cross-sell across existing customers places it in a strong competitive position.



Key transport trends and themes


We pay particular attention to a number of enduring trends in this edition of Transport Trends, that are reshaping the broader industry backdrop as a result of&nbsp;COVID-19:

Parcel volumes&nbsp;spiked during Alert Levels 4 and 3 as a result of the surge in e-commerce. May 2020 data for online sales volumes and&nbsp;industry feedback indicates that the volume of business-to-consumer (B2C) parcels has remained elevated through Alert Level 2&nbsp;despite the re-opening of traditional retail stores.
Domestic aviation&nbsp;fell significantly through Alert Levels 4 and 3 as travel was limited to essential personnel only. Air New&nbsp;Zealand's&nbsp;(AIR) capacity was cut back to a skeleton operation, with&nbsp;Jetstar&nbsp;stopping all domestic routes. Domestic capacity is now returning but remains materially lower than in the prior year.
Heavy vehicle traffic&nbsp;volumes declined sharply under Alert Level 4 but have since recovered, with volumes now above prior year levels. We are wary that the recovery is partly a function of pent-up demand, and supply chain restocking, and may be masking weaker underlying demand.


Sector preferences We summarise our sector stock ratings as follows:

OUTPERFORM: Mainfreight
NEUTRAL: Auckland Airport, Freightways, Napier Port
UNDERPERFORM: Air New Zealand, Port of Tauranga





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





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



Transport Trends: Range of Recovery Rates