MFT - Mainfreight

[BlackPeter]

I've always had a soft spot for MFT but never held.

I like the company/staff/management ethos and it's no bullsh*t reporting.

However, on an international scale I can't see what MFT's unique moat is v competition and consider MFT is v exposed to negative world events such as recessions and tariffs.

The USA share market's reaction to Trumps latest Tariffs and his firing of  labor statistics chief hours after data showed employment growth slowed hardly inspires confidence in a USA led recovery.

I see them as a well managed transport company. They are usually in the first lot to gain after a recession - and yes, when things go downwards, they will be the first to fall.

Currently not holding, but we will know in hindsight, whether this is the right step.

Overall I'd say they are currently again on the value side, but only history will show how far they will keep dropping before they go up again.

[Shareguy]

I see them as a well managed transport company. They are usually in the first lot to gain after a recession - and yes, when things go downwards, they will be the first to fall.

Currently not holding, but we will know in hindsight, whether this is the right step.

Overall I'd say they are currently again on the value side, but only history will show how far they will keep dropping before they go up again.

Agree. Looking for re entry point at some stage.

[Left Field]

MFT still struggling.....

https://www.nzx.com/announcements/462487

Group Result Summary HY26 v HY25
 Revenue NZ$2.61 billion up 2.1%
 Profit before tax (PBT) NZ$131.72 million down 18.3%
 Net profit NZ$93.38 million down 18.5%
 

 

[Dolcile]

I'm surprised the share price is up this morning, albeit on low volume.

[Shareguy]

Results were slightly softer than expected across the board, particularly from Australia which appears to be due to one-off project activity in the prior year. MFT's commentary indicated the underlying operations in Australia are performing satisfactorily.  The Americas operation posted a loss at the PBT level in 1H. The NZ result was broadly in line. 

The interim dividend has been set at 85c, same as last year. For the full year if we assume a repeat of the 172c paid in FY25 and this again assumes an increase in the payout from the historical level of 40%. Operating cash flow was good given the slight decline in profitability.
   
There was no specific earnings guidance for FY26. In general, the outlook statement was positive. MFT expects improvement in NZ and Australia with increasing volumes from customers. In Europe cost savings are expected to increase profitability. In the US they are gaining market share, but adequate returns will take some time.   

A soft result but broadly expected and the outlook statement points to some improvement in 2H.  Im picking we have seen the bottom and upwards and onwards from here.  Quality well run company.

Disc: Recently become a holder again

[entrep]

@basil do you have a view on MFT?

[Left Field]

.....A soft result but broadly expected and the outlook statement points to some improvement in 2H.  Im picking we have seen the bottom and upwards and onwards from here.  Quality well run company.

Disc: Recently become a holder again

I've always liked MFT and am watching from the sidelines as a non-holder.

However I won't be buying at these levels.

TA  not looking auspicious IMO.

Ferg sums up the FA nicely...

"Last year's profit was $274m, last 3 half years were $115m -> $159m -> $93m.

It is the labour & all the 'other' costs impacting NPAT, but not transport costs which have improved. BOTFP suggests labour costs will be up $100m in FY26 with the other line items roughly cancelling each other out, for a NPAT impact of -$72m....assuming sales are roughly flat.

If we take the latest HY of $93m and double it to a generous $200m (which is a fall of $74m), that is ~$2 EPS. At $60 that is P/E of around 30.

With labour costs on the rise, it won't be easy to get back to $274m in FY26 or FY27.

High P/E stocks react a lot worse to earnings targets misses than low P/E stocks so no rush for a contrarian buy IMO....I'm happy to be on the sidelines for now."

[Ferg]

Thanks for the shout-out earlier today.

I agree with this part 100%:

I've always liked MFT and am watching from the sidelines as a non-holder.

However I won't be buying at these levels.

It's a great company....just a bit expensive for my taste.

[Left Field]

It's a great company....just a bit expensive for my taste.

MFT just got more expensive....   SP @ $68.50 up $5.50 or 8.73% for the day. Up over 10% since the update.

Good interview with Don Braid on RNZ today..... he's confident MFT is over the worst.

Seems the market agrees. I better review my thinking!

[Greekwatchdog]

For Bars review for those interested

We upgrade Mainfreight (MFT) to OUTPERFORM from NEUTRAL, following a softer-than-expected 1H26 result, but one where management provided a more positive outlook, suggesting the company is now through an earnings-cycle inflection point. The first half was characterised by margin pressure across most operations, but this eased over the final two months as revenue growth accelerated. This underlying business improvement is likely to continue into 2H26, driven predominantly by accelerating Australasian activity reflecting new business wins and cyclical green shoots. MFT's ability to accelerate profit growth out of a down cycle is due to consistent customer acquisition—often at sub-optimal rates—that are subsequently reset as conditions improve. This time should be no different. OUTPERFORM.

What's changed?
Earnings: FY26 and FY27 largely unchanged. FY28 PBT up +5%.
Target price: Up to NZ$76 from NZ$68 to reflect: (1) upgrades from FY28; (2) re-rating of peers; and (3) time value of money.
Rating: Upgrade to OUTPERFORM from NEUTRAL.
Business momentum turning ...
Following a ~2.5-year earnings downgrade cycle, MFT's positive outlook commentary suggests it is past the earnings inflection point, with upgrade risk now more prescient. With signs of a top-line acceleration in Transport and Warehousing (and geographically in New Zealand), we're now confident that earnings growth is back in play. While we recognise that Air & Ocean remains reliant on the volatile rates backdrop, sustained above-market volume growth is supportive of a more optimistic outlook.

... despite loss-making headwinds
All is not yet rosy, though. MFT has two loss-making operations that are weighing on its results—US Transport and CaroTrans—the former is core to long-term growth but is sub-scale and generates sub-optimal gross margins; it will likely be a drag on performance for the foreseeable future. The latter is non-core (in our opinion) but has generated strong returns through the cycle.

Not cheap, but quality rarely is
MFT currently trades at ~23x one-year-forward PE. This is broadly on par with the simple average of its three closest global freight peers: DSV (DSV.CO) at ~23x, Kuehne & Nagel (KNIN.S) at ~19x, and Old Dominion (ODFL.O) at ~27x. Moreover, it's consistent with its five-year (~24x) and 10-year (~22x) averages. While its forward multiple is fair rather than cheap, the growth potential beyond the next 12 months is attractive, particularly given continued volume momentum.

Upgrade to OUTPERFORM
Mainfreight (MFT) has endured a prolonged earnings downgrade cycle reflective of: (1) elevated expectations at the peak of the freight-rate super-cycle; (2) continued normalisation of Air & Ocean margins; and (3) weaker economic conditions in key markets, including MFT's largest historic profit centre, New Zealand, which has impacted Transport and Warehousing profitability. Its one-year-forward consensus PBT was ~NZ$380m prior to the 1H26 result, similar to what it was in September 2021 (refer to Figure 1) as freight rates were on their upswing. We expect this to now sequentially increase over the near to medium term, given the weight of earnings growth in FY27 and beyond, providing MFT with an ongoing growth dynamic that has been absent for some time.

During MFT's earnings downgrade cycle, investors have been willing to pay on average ~22x one-year-forward PE. While it now trades marginally higher at ~23x on our revised estimates, broadly consistent with its key international peers (see Figure 2), we believe investors are more than compensated by the earnings growth that will lower this multiple over time. For example, on a PEG basis (one-year-forward PE relative to second-year EPS growth), MFT currently trades at ~1.3x. In contrast, when MFT similarly traded at ~23x prior to COVID in mid-2019, its PEG was much more expensive at ~1.9x. We certainly don't think MFT is cheap, but with increasing confidence that it will deliver earnings growth over the medium term, we now have sufficient conviction to increase our rating to OUTPERFORM.

Earnings revisions
We make largely immaterial changes to our earnings estimates in FY26 and FY27 but apply more material upgrades to FY28, as shown in Figure 3. We anticipate steadily improving economic conditions, particularly in New Zealand, to support a reversal (cognisant of year-on-year declines in 1H26) and subsequent acceleration in earnings growth over the medium term. We expect this to be primarily driven by Transport and Warehousing. In contrast, we hold a more conservative view on Air & Ocean, given the influence of air (relatively stable and well above pre-COVID levels) and sea (more volatile) freight rates on performance. Our group margin estimate in FY28 of 7.6% compares with MFT's FY20 margin of 6.7%.

Result summary
MFT reported a soft 1H26 result (PBT down -18% against the prior year), which was marginally below consensus but showed evidence of sequential improvement since the disappointing late-July trading update, with further improvement likely to benefit 2H26. While group revenue grew +2%, assisted by currency movements (~+3%), margins have been under pressure across each of its three products and all geographies ex Asia. Volume growth remains robust (transport tonnage +3.6%, sea freight +7.0%, airfreight +5.0%), with new business wins continuing to feature strongly. At a regional level, the Americas is loss-making due to ongoing US Transport losses and weaker CaroTrans performance. Encouragingly, New Zealand is seeing strong new business wins and same-customer volume growth. MFT has retained its fully imputed 85c interim dividend.

Historically, MFT had a reputation for adjusting reported profits with one-off abnormals. The 1H26 result appears clean (i.e. reported performance is consistent with underlying). However, several disclosures suggest amendments could apply to the comparative period in 1H25. First, the discontinuation of Air & Ocean project work in order to focus on core activities created a ~-NZ$10m PBT headwind in 1H26, which should reduce to ~-NZ$4m in 2H26. We don't believe any adjustment should be made for this but it does help inform our view on underlying performance through 2H26. Second, MFT acknowledged (disappointingly, for the first time) that 1H25 PBT included €3.2m of property-disposal profits, which exacerbated the apparent margin pressure in Europe in 1H26.

[Basil]

@basil do you have a view on MFT?

Sorry entrep, I don't follow it closely enough to add any value to the discussion..

[Shareguy]

MFT just got more expensive....   SP @ $68.50 up $5.50 or 8.73% for the day. Up over 10% since the update.

Good interview with Don Braid on RNZ today..... he's confident MFT is over the worst.

Seems the market agrees. I better review my thinking!

Interview with Don

https://www.newstalkzb.co.nz/on-air/heather-du-plessis-allan-drive/audio/don-braid-mainfreight-ceo-on-the-companys-20-percent-profit-drop/