SPN Southport

[Ferg]

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?

[Mos]

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?

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.   

[Ferg]

I missed the investor conference call (shows how much I worry about SPN!)...did you catch it by chance?

[Mos]

I missed the conference call too. All tracking ahead of expectation though.

[Plata]

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.

[Otago K]

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.

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.

[lorraina]

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.
 

[Mos]

Nailed it lorraina!

[Ferg]

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.

[Basil]

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 ?

[Ferg]

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:

You cannot view this attachment.

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.

[Basil]

Thanks Ferg, I really appreciate your detailed response. Where do you see the metrics for FY26 and FY27 ?

[Ferg]

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.