Introduction
Southport (https://southport.co.nz/)operates the southernmost port in New Zealand at Bluff Harbour.
The major shareholder is Southland Regional Council with 66% ownership (https://app.companiesoffice.govt.nz/companies/app/ui/pages/companies/393437/shareholdings).
Annual reports here: https://southport.co.nz/communication-centre?url=reports
Investor centre here: https://southport.co.nz/investors-centre
Random Background Stuff
SPN does not revalue its assets like POT so asset and depreciation values are based on historical cost. SPN were almost debt free until they commenced a major dredging project in 2022. Since that has been completed, activity at SPN has increased with larger ships delivering more containers, and more vessels can now traverse the harbour at high tide. You might ask "what is their moat?" A learned investor told me it was literally "the entire Southern Ocean!"....getting freight into Southland via truck is expensive and the nearest port is in Dunedin.
Dividends
They currently pay dividends of 27c per year fully imputed. On today's share price of $7.67 that is a pre-tax yield of (27c/0.72)/ $7.67c = 4.9%. Not great but it may increase in light of their history of slowly increasing dividends and their recent profit upgrade announcement. Dividend payouts have averaged 69% of earnings for the past 10 years.
Profit upgrade
Their half year report announced in February (https://www.nzx.com/announcements/446759) had increased NPAT of $5.7m (last year $3.0m) for the half with a raised guidance for the full year profit. In their latest announcement in June (https://www.nzx.com/announcements/453934), they said their profit would be 20% higher than the upper range of their previous guidance, indicating full year NPAT will exceed $12.5m (last year <$10m).
EPS
$12.5m earnings on 26.2m shares is EPS of 47.6c which puts SPN on a P/E ratio of $7.67/$0.476c = 16. All time high EPS was in 2022 of 48.9c. 10 year CAGR on EPS from 2015-2025 is 4.9% assuming $12.5m NPAT. For comparison POT is trading on a backwards P/E ratio of 45 and a gross dividend yield of 3.1%. POT has a 10 year EPS CAGR of 4.1% which is similar to SPN. Sales are increasing off the back of increased volumes and higher pricing.
NZ Aluminium Smelter
The NZ Aluminium Smelter (NZAS) is at Tiwai Point (https://en.wikipedia.org/wiki/Tiwai_Point) which is at the entrance to Bluff Harbour and they use the services of Southport. In May 2024 they secured energy supply contracts (https://www.nzx.com/announcements/432172) from Meridian, Contact and Mercury out to 2044.
You can see the NZAS energy usage stats on the MEL monthly releases here (https://www.nzx.com/companies/MEL/announcements?year=2025) with an example for June 2025 here (https://www.nzx.com/companies/MEL/announcements?year=2025).
This is a handy indicator of activity at Tiwai Point, although despite recent trends showing energy usage is down 7% versus last year, this has not impacted SPN's earnings.
NZAS makes up about 30% of Southport volumes (alumina imports and ingot exports), with the remainder coming from local industry such as forestry, woodchips, fertiliser imports for farms as well as containers etc.
Graphs - keep in mind 2025 is my forecast.
Dividends versus earnings:
SPN-Div - Copy.JPG
Derivation of Earnings:
SPN-EPS - Copy.JPG
Debt to Equity:
SPN-debts - Copy.JPG
Share price tracker.....how the SP has moved relative to a rolling 12 month P/E ratio.
SPN-PER - Copy.JPG
Disclosure: hold.
I should have mentioned I am using an underlying NPAT for SPN which removed the impact of changes to tax deductions on property. 2025 was my forecast so the real numbers will differ slightly.
I also forgot to mention that Mercury is in the process of building the largest windfarm in the South Island at Gore and the materials are being shipped via SPN for the next couple of years. MCY article here:
https://www.goredc.govt.nz/council/news?item=id:2qx2tqx561cxby4ubjv4
Result for FY25 released today. A record profits. Final dividend has been increased to 20.5c, fully imputed. What was nice to see was the fixed revenue stream from NZAS despite a drop in volumes.
https://www.nzx.com/announcements/457277
Updated graphs based on actual results, rather than my predictions for FY25. P/E ratio is low by historical standards, and the yield on a SP of $7.69 is a touch over 5%.
EPS at a record high over 50c, and NPAT% is being restored:
SPN-EPS-2025 - Copy.JPG
Gross margins have rebounded from last year:
SPN-GM-2025 - Copy.JPG
Debts are lower than I forecast due to good free cash flow:
SPN-debts-2025 - Copy.JPG
Here is the P/E graph which I couldn't load in the last post:
Using monthly closing prices:
SPN-PER-2025 - Copy.JPG
Using annual figures:
SPN-PER3-2025 - Copy.JPG
SP has moved on since the $7 at 30 June...at $7.69 current SP over 50.8c is a backward P/E ratio of 15.1.
The outlook for FY26 is positive.
Edit: fixed an error with the second graph.
I just listened to the conference call. Very slick, everyone spoke well and I was impressed. It ended before I finished typing my question which was more a statement just to say "Thanks to the Directors and Management for a great result, please keep doing what you are doing".
Summary of the conference call
Dividend: final dividend increased by 1c, no mention of intention but they have not gone backwards AFAIK and the dividend has always been well covered by free cashflows. They aim to be "shadow investment grade credit rating" - I interpret this as wanting confidence in their financial stability from the debt and equity markets. This could end up being a "dividend aristocrat" in that it doesn't go backwards.
Capex: large spend over the last few years (mainly the dredging project, more on this below*) which is reverting back to maintenance capex levels in the near term -> this will result in better free cash flows compared to FY23/FY24. We saw the benefit in FY25.
Cargo: bulk cargo makes up 85% of volumes with a nice balance between imports and exports. Exports are mostly forestry related and NZAS. Imports are mostly agricultural being stock feed, fertiliser and something else starting with "f" for farming that I missed. 15% of volumes are containers, most of which is dairy and meat.
NZAS: described as an "anchor tenant", makes up 20% of profits and 30% of volumes, energy supply secured out to 2044, have restarted their idle pot lines and are expected to get back to full volumes this FY. In 2010 NZAS made up 60% (!!) of cargo, not so now.
Financials: a very fixed costs business so profit is sensitive to changes in volumes (and prices), EBITDA margin at ~41% for FY25 is higher than the NZ industry average. {Apologies to the CFO if you are reading this in reducing your section to 1 sentence!}
*Dredging project: started August 2022, new draft certified October 2024, draft increased from 9.7 to 10.7m. Project was delivered on time and under budget. They have seen efficiency benefits, safety benefits and ship volume benefits. This must have been a constraint of sorts which they have solved, with strong community support. It has also triggered an "infrastructure levy" as an additional charge to clients.
Prospects: up to 4 different windfarm projects in the pipeline; 1 of which for MCY is already underway. Others have hoops they still need to jump through. Space has been created for the towers and blades and it is working well. There are also a number of aqua culture projects that are in the 'potential' pipeline of activity with various projects at different stages of consultation, consenting and/or fast track approval. I believe the last part of the 80ha at Island Harbour has now been tar sealed. SPN are considering further developing an additional 8ha of foreshore, but this requires consents and community consultation and is possibly a slow burn project.
Outlook: obviously they can't say too much given there are a lot of variables in play and another 10 months of the fiscal year to go......but.....they say the "future looks pretty bright" and they see themselves as being on a "steady state trajectory". I interpret this as continued growth, not flat-lined earnings.
All in all I was impressed. They know what they are doing. No red flags whatsoever.
Disclosure: very happy holder
Caveat: This is not financial advice. Please do your own research.
I posted this for DGL so I might as well show my calculations for my SPN investment case.
Please note this is not investment advice, instead it is how I look at shares. I can't stress enough to do your own research.
Background/introduction: my first rule of investing is to not lose money. That saves me a lot of grief on at least 2 fronts.
Following are my assumptions and forecast values with historical comparatives. Please note that in light of my first rule, I try to use conservative values that are not a stretch target. In light of the various projects and initiatives at SPN, this would be called 'sand bagging the numbers' in the Corporate world of budgeting. You be the judge if I am being conservative or not in my forecasts.
Over the next 5 years I am assuming:
1) sales grow at 3.5% p.a. which places little to no value on the new 'infrastructure levy' and the regional projects in play (10 year CAGR is 4.5%, FY25 growth was 12.7%)
2) NPAT flatlines at 20% of sales (10 year average is 22.3%, FY25 was 21%)
3) Shares on issue remains unchanged (there has been no change in 10 years)
4) EPS grows from 50.8c to 57.3c (CAGR of 2.4%; EPS CAGR over the past 10 years is 5.4%)
4a) NPAT grows from $13.3m in FY25 to $15.0m in 5 years time
5) DPS remains unchanged from the latest interim and final announcements at 28c fully imputed (historically it has been fully imputed, and has a 10 year CAGR of 5.0%.)
6) Current backward P/E ratio is 15 (being $7.60/$0.508) and remains unchanged
BASE CASE
Plugging in these values:
1) Buy for $7.60
2) 5 x cash dividends of 26.1c (being $0.28 / 0.72 * 67% which takes out dividend withholding tax)
3) Sell at the end of year 5 for $8.60 (being a P/E ratio of 15 vs EPS of 57.3c)
This yields an internal rate of return of 5.8%. Not stellar but it beats the bank and in my opinion represents a base case or a minimum I would expect. I was buying earlier this year with a lower entry price which gives me a higher IRR for this investment.
UPSIDE CASE
If we assume more normal values such as EPS grows at 4% p.a. (hist = 5.4%) reaching 61.8c in 5 years time, DPS is 50% of earnings and grows to 32.1c (hist is 67%, FY25 was 52%) and the P/E ratio of 15 remains unchanged, this gives an IRR of 7.4%.
Quote from: Ferg on Sep 02, 2025, 09:34 PMI posted this for DGL so I might as well show my calculations for my SPN investment case.
Please note this is not investment advice, instead it is how I look at shares. I can't stress enough to do your own research.
Background/introduction: my first rule of investing is to not lose money. That saves me a lot of grief on at least 2 fronts.
Following are my assumptions and forecast values with historical comparatives. Please note that in light of my first rule, I try to use conservative values that are not a stretch target. In light of the various projects and initiatives at SPN, this would be called 'sand bagging the numbers' in the Corporate world of budgeting. You be the judge if I am being conservative or not in my forecasts.
Over the next 5 years I am assuming:
1) sales grow at 3.5% p.a. which places little to no value on the new 'infrastructure levy' and the regional projects in play (10 year CAGR is 4.5%, FY25 growth was 12.7%)
2) NPAT flatlines at 20% of sales (10 year average is 22.3%, FY25 was 21%)
3) Shares on issue remains unchanged (there has been no change in 10 years)
4) EPS grows from 50.8c to 57.3c (CAGR of 2.4%; EPS CAGR over the past 10 years is 5.4%)
4a) NPAT grows from $13.3m in FY25 to $15.0m in 5 years time
5) DPS remains unchanged from the latest interim and final announcements at 28c fully imputed (historically it has been fully imputed, and has a 10 year CAGR of 5.0%.)
6) Current backward P/E ratio is 15 (being $7.60/$0.508) and remains unchanged
BASE CASE
Plugging in these values:
1) Buy for $7.60
2) 5 x cash dividends of 26.1c (being $0.28 / 0.72 * 67% which takes out dividend withholding tax)
3) Sell at the end of year 5 for $8.60 (being a P/E ratio of 15 vs EPS of 57.3c)
This yields an internal rate of return of 5.8%. Not stellar but it beats the bank and in my opinion represents a base case or a minimum I would expect. I was buying earlier this year with a lower entry price which gives me a higher IRR for this investment.
UPSIDE CASE
If we assume more normal values such as EPS grows at 4% p.a. (hist = 5.4%) reaching 61.8c in 5 years time, DPS is 50% of earnings and grows to 32.1c (hist is 67%, FY25 was 52%) and the P/E ratio of 15 remains unchanged, this gives an IRR of 7.4%.
Thanks for the entire thread content Ferg, SPN is a bit of a quiet off radar option c/f to POT & NPH, neither of which I can justify funds invested in when the opportunity for SPN exists.
Discl about or slightly above max % portfolio holdings on all my criteria across multiple entity holdings for SPN and the lack of Mr Market focus suggests to me little point to overweight too much in the short term in the hope there may arise a potential time to place a partial SELL order so as to drop the $ funds invested per share as I might look to do with other log term bottom drawer holdings.
You're welcome Otago K.
There is little coverage of SPN but that gives us the opportunity to
invest without getting caught up in someone else's hype & slant. It was good counter cyclical buying in the fist half of this year and they had telegraphed their improved result. I have other work I do in my analyses but I don't want to bore people or labour the point here.....I am also looking at sustainability of dividends and cash flows within the business etc. I am just posting the highlights with traditional & relevant metrics.
When I look at SPN I think it is "as safe as houses" and see no reason to reduce my stake, even if the SP goes up from here. Yes it would be nice to take some money off the table to bring down the average cost but as you say, where else does one invest? NPH and POT are over-priced relative to SPN and I imagine your average cost will be like mine, which is well below the current price.
The other thing I like is the clean set of accounts which are not muddied by revaluations like other utilities. SPN may not grow as fast as POT but for me this is about returns on my investment and as you alluded to, this one goes in the bottom drawer.
Cheers
Quote from: Otago K on Sep 03, 2025, 08:40 AMThanks for the entire thread content Ferg, SPN is a bit of a quiet off radar option c/f to POT & NPH, neither of which I can justify funds invested in when the opportunity for SPN exists.
Discl about or slightly above max % portfolio holdings on all my criteria across multiple entity holdings for SPN and the lack of Mr Market focus suggests to me little point to overweight too much in the short term in the hope there may arise a potential time to place a partial SELL order so as to drop the $ funds invested per share as I might look to do with other log term bottom drawer holdings.
Shout out to Ferg for excellent posts and analysis back in July/August on the Southport investment proposition. Since then the market has rerated Southport from mid sevens up to $9.25 currently to trailing PE of 18.2 a little above Ferg's mid point on the charts. Mid single digit earnings CAGR and high ROE on retained earnings. Not the most exciting share in the world but steady grower.
Thanks Mos
Southport had their ASM and the meeting notes and presentation are here:
https://www.nzx.com/announcements/461603
There was a very brief update on Q1 for FY26 trading where the Chair said:
QuoteAt this point we can also update shareholders on the progress of trade volumes for the first quarter ending 30 September 2025. A total of 904,000 MT has been handled through the port (753,000 MT 2024). This represents a 20% increase in trade, and a good start to the new financial year, noting however that the recent storm event illustrates the volatility and impact on the farming sector of these significant weather events.
The Smelter energy usage is back to what it was 18 months ago; an anecdote which supports the observed increase in volumes. Although I believe there is a fixed component to the NZAS contract which means not all of their volume uplift will convert to sales revenue uplift...I'm guessing there. But as noted in the presentation NZAS now represents 23% of SPN volumes, down from 60% 15 years ago.
SPN-NZAS-Sep25 - Copy.JPG
Quote from: Mos on Oct 23, 2025, 03:36 PMShout out to Ferg for excellent posts and analysis back in July/August on the Southport investment proposition. Since then the market has rerated Southport from mid sevens up to $9.25 currently to trailing PE of 18.2 a little above Ferg's mid point on the charts. Mid single digit earnings CAGR and high ROE on retained earnings.
Further to this post by Mos, following is a graph showing the share price performance relative to a blend of trailing & leading earnings. The green line is what the SP would be using a P/E ratio of 12 and the orange line is what the SP would be using a P/E ratio of 20. These numbers have been chosen given that has been a rough range for the quarterly closing SP over the past 10 years.
At the end of September the SP was $8.04 which was a trailing P/E ratio of around 16 per the graph. With the SP now around $9.25, the trailing P/E ratio as Mos mentioned is closer to 18. So the market has definitely re-rated SPN; possibly dividend chasers, or investors expecting improved EPS in FY26 & beyond. There is no analyst coverage I am aware of, but assuming SPN's EPS is 53.5c (an uplift of 5.3% in line with the 10 year historic CAGR of 5.6%) that puts SPN on a forward P/E ratio of ~17.3. My sense is the market is pricing in an EPS increase greater than that given the dividend yield is relatively modest at 4.1%. SPN is ex a 20.5c dividend tomorrow.
SPN-PER-Sep25 - Copy.JPG
Quote from: Mos on Oct 23, 2025, 03:36 PMNot the most exciting share in the world but steady grower
Agree 100%.
Thanks Ferg for your insightful updated analysis.
I am happy with the relatively modest dividend yield as Southport have a good track record of achieving low/mid 20's ROE and importantly high ROE on retained earnings over the last decade. In 2015 starting equity was $31.6 m and NPAT $7.7 m with ROE on starting equity of 24.5%. In the decade from the start of 2015 to the start of 2025 Southport retained $28.6 m of earnings whilst growing NPAT to $13.3m in 2025 with an overall ROE on 2025 starting equity of 22.1%. So the NPAT growth of $5.6 m over the decade represents a creditable ROE of 19.5% on the retained earnings to the start of 2025 of $28.6m. Demonstrates a solid track record of value creating capital allocation.
I note the comments below from the AGM commentary. Was their any mention on the meeting of ROE or ROA targets on growth capex at the meeting Ferg?
"Our capital allocation framework emphasises financial discipline — targeting growth that delivers fair returns, enhances capability, and aligns strategically with long-term demand.
In this light we have a number of growth capex opportunities in the pipeline over the next 1-5 years. Approximately $41 million has been earmarked for increasing the port capacity to handle the expected growth in bulk cargoes, containers and project cargo to come through the port.
Extended this out to 5-10 years, another $45 million has been identified as the first stage for the development of wharf infrastructure in preparation for the development of the open ocean aquaculture industry in the south."
Looking at the projected $41m of growth capex over the next five years, I would estimate around $30m or a bit more will be funded by retained earnings (retained earnings just under $6m in 2025). If Southport can achieve a 15% to 20% ROE on $30m of projected retained earnings it would translate to NPAT growth of $4.5m to $6.0m over the 5 year period taking NPAT to $17.8m to $19.3m in 2030 (CAGR of 6.0% to 7.7% which is reasonably consistent with the 5.6% EPS CAGR Ferg spoke of over the past 10 years).
Overall, seems like a steady grower over the long term with reasonable dividend and decent returns on retained earnings whilst acknowledging that year to year we can expect some volatility based on ag/forestry/aluminium cycles.
Cheers Mos and I agree with your numbers.....I'm seeing NPAT of around $18m by 2030 without it being a 'stretch target'. Yes there will be cycles but "c'est la vie".
Apologies for the long post: the TLDR version is "I see no issues".
I missed the ASM so can't comment on that but I recall from the investor conference SPN are aiming to be "investment grade" plus they talked about prudent capital management. From 2012-2025 SPN have averaged 22.9% RoE. If they achieve say 22% in FY26 that puts EPS at 55.8c; 21% would be 53.3c.
SPN-RoE-2025 - Copy.JPG
As you noted, the growth in equity is due to retained earnings given the share count has not changed, and they do not revalue their assets, which IMO is a good thing.
Their capital prudence can be seen in the following graph which plots the values per share for earnings, operating cashflows and free cashflows which is after deducting all capex from operating cashflows. OCF exceeds EPS due to depreciation charges being non-cash, and capex is usually less than OCF resulting in a positive FCF for all years except for 2022 due to the dredging project.
From 2012 to 2025, SPN have averaged operating cashflows at 137% of underlying earnings*, and free cashflows are 54% of earnings (this increases to 64% if we exclude 2022). Capex deducted to get my FCF is all capex, being growth and maintenance.
SPN-FCF-2025 - Copy.JPG
The dividend is relatively stable but bounces around the FCF figure....sometimes it is higher (which requires debt to fund the growth capex) and sometimes it is lower (which allows debts to be repaid). Per the graph below the debt position is not demanding and the jump in debts from 2022 was due to the dredging project, from which SPN are already seeing operational and financial benefits.
SPN_DebtVsEquity_2025 - Copy.JPG
You mentioned their growth capex of $41m over 5 years; add to that the "Significant Stay in Business Capex" from the presentation (https://api.nzx.com/public/announcement/461603/attachment/455399/461603-455399.pdf) of $30m for a new tug & crane and there is growth/extraordinary capex of say ~$70m over the next 5 years.
Let's assume maintenance capex equals depreciation in the next 5 years so that FCF equals EPS before deducting the growth/extraordinary capex. I estimate EPS over the next 5 years of ~$3.10....deduct 5 years of cash dividends of say $1.10 leaves $2 per share to fund the $70m......26m shares x $2 provides ~ $52m of the $70m which means SPN will need to raise ~$18m debt over the next 5 years to fund $70m of growth/extraordinary capex. That doesn't seem demanding or problematic to me.
Note they say in the presentation "Maintenance capex remains consistent – aligned with annual depreciation spend", and "The Board maintains a policy of sustainable dividends that balance the port's long-term expansion requirements with returns to shareholders"...in other words they know what they are doing in converting earnings to cashflow and holding back what they need for growth, but they aren't afraid to borrow funds when needed. In addition, whilst the aquaculture projects may require additional capex I trust Management know what they are doing in either funding or committing to that.
*the only adjustment to earnings to get underlying that I have made was the tax adjustment in 2024 for $2.3m.
Great work Ferg. Really appreciate your analysis and insights on Southport.
Stellar growth from Southport in H1. Topped up this morning. Fundamentals are strong and long term growth story. Ferg, you must be happy with the progress?
https://www.nzx.com/announcements/467433 (https://www.nzx.com/announcements/467433)
Very happy Mos. If they continue at that run rate over the 2nd half that puts them about 3 years ahead of where I forecast they would be. It's an outstanding result. I was wondering why net debt did not decrease from the full year result but I see they bought some more land and another warehouse at less than the cost of building it....so they are investing for growth. Increased revenues, increased profits and an increased dividend....what more could we ask for?
Quote from: Ferg on Feb 13, 2026, 01:51 PMVery happy Mos. If they continue at that run rate over the 2nd half that puts them about 3 years ahead of where I forecast they would be. It's an outstanding result. I was wondering why net debt did not decrease from the full year result but I see they bought some more land and another warehouse at less than the cost of building it....so they are investing for growth. Increased revenues, increased profits and an increased dividend....what more could we ask for?
I couldn't agree more Ferg. I am feeling very comfortable with the long term growth story and the history of achieving high returns on retained earnings which backs up Management's comments on disciplined capital allocation. The warehouse acquisition below replacement cost is another good example. Long term compounder with high ROIC and a great moat (the Southern Ocean). Full year NPAT of $17m+ seems likely based on H1. If so the PE would be 14 at $9.11 which represents good value for a infrastructure growth stock of this nature.
I missed the investor conference call (shows how much I worry about SPN!)...did you catch it by chance?
I missed the conference call too. All tracking ahead of expectation though.
Are you not concerned with the liquidity? I was looking at this one again recently and realised that just buying/selling $1000 in a hurry would move the price. I feel like there is a discount being applied here just on that basis.
Quote from: Plata on Feb 14, 2026, 11:32 AMAre you not concerned with the liquidity? I was looking at this one again recently and realised that just buying/selling $1000 in a hurry would move the price. I feel like there is a discount being applied here just on that basis.
Liquidity is the kicker to some extent, but I read it as a consequence of too many holders like myself that do not have Inclination (incentive) to sell. Certainly it takes time to build a holding without spiking the SP.
I own a number of very illiquid stocks.
To cover myself I have some very liquid stocks.
With illiquid stocks I try to buy when others are selling,[and selling when others are buying].
For example sometime ago there was a forced seller of GEN General Capital who ran the share price from about 34 cents down to 18 and 19 cents.This was a month after GEN's very positive update.
GFL Geneva Finance.When GFL moved from NZX to USX[Unlisted] their shares went from nearly 30 cents to below 20 cents.
However when there is heavy buying pressure [liquidity] which happened with both GEN and GFL you need to take advantage of it to trim your holdings.
I notice over the past year there have been plenty of opportunities to buy/sell SPN.I expect there will be the same opportunities over the next year or two.
For "hold for ever" investors liquidity is only an issue when buying,yet those sort of investors seem to have plenty of patience.
Nailed it lorraina!
Here is an audio recoding with slides of the recent half year presentation that we all missed:
https://southport.co.nz/uploads/videos/Investor-Presentation-Feb-2026.mp4
Some key points (I am paraphrasing here):
~ the new levy for the deeper draught is contributing to higher revenues per tonne
~ massive uplift in container volumes, and also better backhaul options for shippers given the new deeper channel
~ positive cargo trends for H1 are expected to continue into H2 on the assumption the milk payout ratio remains relatively unchanged and there are no major geo-political disruptions
~ the lift in cargo volumes due to the dredging project exceeded their expectations
~ hydro lake levels are at 113% of historic mean capacity the risk of a pot closure at NZAS is low
~ other NZ ports had an EBITDA margin of around 38% for 2025; Southport was 44%.
~ there is some sensitivity to international demand for NZ wood & red meat products and also sensitivity to milk payout ratios
~ Southport expect a number of new windfarm projects over the coming years
~ they bought a large local coolstore & land which they will convert to warehousing; this appears to be the next growth constraint they are seeking to solve.
Happy holder.
Well done Ferg.
Chatting with a beef farmer the other day he said he'd just got $3,900 per mature bull at the works and he'd never seen anything like it before. Also commented sheep prices had been strengthening a lot and of couse we know Dairy is booming and there's the $3 billion payout from Fonterra to further stimulate the agri economy.
On top of all those tailwinds Southport are benefitting form energy infrastructure build out and Aluminium prices are high for their biggest customer.
Seems like a lot of tailwinds all at once.
I'm curious what your thoughts are on how sustainable in the long term these tailwinds are for Southport ? I.e is there some sort of cycle here or do you foresee a structural shift in demand for Southport's facilities over time ?
I think it's a bit of both Basil.
There have been some tailwinds coming off a soggy prior year. But SPN Management have also eliminated constraints that previously held them back. The biggest example being the dredging project which increased the depth of the channel and allowed increased ship draught. This allows for heavier loads per ship, larger ships and fewer restrictions during low tide (ie more ships per 24 hours). This also provides better backhaul planning for shippers which makes Southport less undesirable. In other words Southport are seeing more ships and increased volumes per ship. They said the uplift in volumes due to the dredging project exceeded their expectations.
For tonnage to be up so much, it must have taken a lot of trucks off the local roads and, if it is cheaper than road freight, then that is a 'win-win-win-win' for SPN, local road users, clients and the regional council (via less damage to roads). Not so local freight forwarders who now get short runs instead of from further afield but you can't win them all...
But the high dairy payout has created a tailwind where farmers are reinvesting back into their farms....for now. Also, the windfarm project is a bit of a tailwind but that is 5 ship visits for the full year versus 213 for the half year (est. ~1% impact). Some of the growth came from the shutdown of one of the NZAS pots last year so the country did not have rolling power blackouts....there is always a risk that can happen again. As time progresses, NZAS is becoming a much smaller % of their business. So there are a few moving parts and they are not immune to international disruptions.
Volumes for the last half year were 60% bulk (up about ~10%), 15% containers (up circa ~30%), 25% NZAS (rebounded from prior year low).
One downside is the high ownership by Southland Regional Council of 66%...that is a handbrake on investor coverage (which is actually a positive for retail investors) and also liquidity.
Here are their comments on this topic:
SPN-tailwinds - Copy.JPG
Edit: I was buying at a low point in sentiment and a low point in earnings. We are now seeing both come back to more normal levels (and beyond for earnings). It was a genuine unicorn investment opportunity.....for a utility on an island! I think we are seeing a lift in the worst case numbers for SPN and Mgmt are again investing to remove a constraint.
Thanks Ferg, I really appreciate your detailed response. Where do you see the metrics for FY26 and FY27 ?
There is a slight skew to H1 sales being less than H2 sales for the past 3 years.....it has averaged ~46%. And there are generally no funnies impacting profitability in H2; they are clean books.
Being conservative for FY26:
~ assuming H1 sales are 49% of the FY (last 3 years history is 46%) then FY sales will be a tad under $71m
~ assuming H2 profitability is impacted by some one off costs such that H2 NPAT is 22% of sales (H1 was 24%) that puts NPAT at $16.4m or 62.5c.
~ 1/2 year forward P/E is 14.7
Barring incidents and accidents I expect they will exceed that. If for instance the H1/H2 sales split is 48%/52% then topline sales will be $72.4m and 23% NPAT on that is $16.7m (63.8c EPS); or 23.5% NPAT will be 64.8c EPS...and so on.
Looking to FY27 and using FY26 $71m revenues as the base.....10 year sales growth to FY25 is 6.2% p.a. not taking into account the 17% growth in the latest HY result. Assuming sales grow at 6.5% for FY27 and NPAT of 23% (10 year average 22.3%, FY26 forecast ~23%) then that is NPAT of ~$17.5m or 66.5c EPS. 2 year forward P/E ratio is 13.8.
I expect FY26 to outperform my estimate, and off that base we should see higher numbers in FY27 than my estimate. They have stressed the point they are a relatively fixed costs business so any uplift in volumes is beneficial to their bottom line. We may see more cargo routed via the port as current logistics arrangements and contracts roll off, and the new warehouse facility will be up and running for the full year in FY27.
BUT like most businesses they are not immune to international events and we want to watch those lake levels.
Trading update for Southport.
I have been using NZAS energy usage as a rough indicator for activity at Southport as per the graph below. One limitation with this method is that NZAS is increasingly becoming a smaller proportion of SPN's business.
SPN-NZAS-Mar26 - Copy.JPG
So I have been searching for better stats around import and export volumes and I am sharing below what I have found. The following graphs shows the monthly total import and export volumes (in 000s of tonnes) and how that compares to last fiscal year. The graph has been set up for the fiscal year and the data is available to end of March:
SPN-VolumesYTD-Mar26 - Copy.JPG
I checked the total volumes versus what was reported by SPN last fiscal year and there is a discrepancy where my data source is around 10% lower than SPN's data so the graph above is likely ~90% of what SPN are seeing. SPN will be including the weight of empty containers being imported and the weight of domestic trans-shipments, which accounts for 25% of the variation. I have been talking to SPN about this to understand the difference, but I expect the graph provides a good trend indicator.
First half of the fiscal year (July to December) total tonnage was up 17.8%, and for the first 3 months of H2 tonnage appears to be up 6-7%. I am seeing a blended uplift of ~13% tonnage for the first 9 months.
I have also been looking at a ship tracking website, and to date I have not seen a decrease in the number of ships visiting Bluff since the Iran war started. So the investment case is still intact.
Following is a graph showing where the SP sits relative to a P/E range. We are getting back into the "buy" zone. NB: the $7.58 price at the end of March, and 61c EPS for FY26 is my forecast.
SPN-SP-Apr26 - Copy.JPG
This is not investment advice. I recommend you do your own research.
Here is an interesting statistic for South Port. Last year they had 366 ship calls (p6 from here (https://api.nzx.com/public/announcement/459088/attachment/452325/459088-452325.pdf)). As at May 1st I reckon they matched that number of 366 ship calls for the year to date, with 60 days to go in the fiscal year.
IMO they are still on track for at least $16m NPAT for the current FY which ends 30 June. The first 4 months of the current half year had more ship visits per month versus last fiscal year; currently May looks to be flat and I have no visibility on June. The impending strikes at NZAS are scheduled for May so they have already been taken into account in these numbers.
In other news it was announced today that an Australian company is looking to set up a urea manufacturing plant 30km north east of Invercargill making 1.5m tonnes of urea per annum. Currently about 1/4th that volume is imported into NZ via other ports. If this goes ahead we should see increased activity with urea exports through South Port. The company intend to mine the required lignite locally so I imagine there are a few hoops they will need to jump through to make this happen.
Link to story here (https://www.ruralnewsgroup.co.nz/rural-news/rural-general-news/southland-urea-project-new-zealand-fertiliser-self-sufficiency)
Earlier I mentioned Southport are on track for at least $16m NPAT, which would be a record. This would be 20% growth on last year's record profit of $13.3m. Their FY announcement should be later this month.
Per the May 22nd announcement they mentioned: "The Company remains well positioned to deliver a record full year result, supported by favourable operating conditions experienced earlier in FY26 and continued focus on operational efficiency and capital discipline."
Source: https://www.nzx.com/announcements/473201
I track the daily ship movements at Southport and IMO ship movements are up at least 13%*** for the full year. The first half year was up around 18% and my figures*** are showing ship movements are up around 9% for H2. Large ships are up around 14% (being bulk carriers, tankers and container ships) with around 40% of that increase coming from the expanded MSC container service to the USA, with the rest coming from increased foresty exports and chemical/feriliser imports. So the locals appear to be continuing investment in their farms.
***Massive caveat in that I may have missed a number of ships while I was in the UK and didn't collect the data in time....I will fix this once we see the full year presentation. I likely missed a number of fishing trawlers.
Monthly ship movements below (keep in mind my figures for June are likely missing some fishing vessels):
SPN-Ship-Movements-FY26 - Copy.JPG