NPH - Napier Port Holdings

[snapiti]

whilst I am a fan of infrastructure investments Ports of Napier has a major flaw in it's business model. IMO way to much of NPH revenue relies on logs and given forestry is notorious for bust and booms and 80% of our exports logs go to one destination (China). Currently most forestry block needs to receive about $95 a ton average price across all grades to break even.......just recently the average log price has dropped from $140 to $107. For a decent IRR on investment, 7% compounding before tax a forest grower needs about a $130 average across all grades. I can tell you from a forestry growers point of view we only get to harvest once every 25 years and one of the few things forestry investment has going for it is we can delay harvest, stop harvesting or suspend harvest if the price on offer is SH#@.........watch and see what happens to NPH bottom line should there be a prolonged down turn in forestry   

[Benji]

whilst I am a fan of infrastructure investments Ports of Napier has a major floor in it's business model. IMO way to much of NPH revenue relies on logs 

So, have wooden floor ?

[snapiti]

that's all I need another english teacher in my life

[nztx]

The English teacher may have missed NPH has essentially quite wider dependence on Primary products
overall - all prone to whims of Mother Nature & the seasons.

there aways was & is question of how well utilised and at what point that is reached with the costly
wharf extensions - ultimately the reason for listing due to HBRC position on stumping up added
expansion capital inject into NPH.

The float completed, expansion all but complete - the question remains whether & for how long NPH
remains a sleepy satellite of the overall HBRC empire with the further 50% new stakeholders clinging
on for the ride in more choppy global trading times

almost down to near the $2.60 IPO pricing - my fancy is for other port companies

[snapiti]

the more I think about it the more vulnerable NPH appears........63% of all the wharfs outgoing tonnage is logs, much of there expansion has been spent on og tonnage increasing..... hope for investors sake logs prices do not remain suppressed for a long period...... unforetunately history  indicates this happens often

[Ferg]

I recall going through the prospectus and being surprised with the reliance on log exports.  It provides a base earnings and there are plenty of trees to harvest up the coast which provides stability.  But such a large base of earnings also represents a risk and is subject to factors outside of the control of NPH.  I can't see NPH growing at an extraordinary rate and I think the income from the much touted cruise ships will be relatively miniscule.  I don't currently hold NPH but may be interested at a lower price.

[nztx]

The SP seems to have ticked up a bit in past week or two - perhaps visible sight of incoming Tour Ships ?

[Hectorplains]

the more I think about it the more vulnerable NPH appears........63% of all the wharfs outgoing tonnage is logs, much of there expansion has been spent on og tonnage increasing..... hope for investors sake logs prices do not remain suppressed for a long period...... unforetunately history  indicates this happens often

Anecdotally only (as in I have to share the road with them) but the number of trucks has increased markedly over the last couple of months.  The amount of planting going in is massive also - not that that'll impact Napier Port for a couple of decades.

[Hectorplains]

I can't see NPH growing at an extraordinary rate and I think the income from the much touted cruise ships will be relatively miniscule. 

Nicely called.  Today's annoucement shows no growth at all.  Contnainer ship calls to port down 53 to 47 YoY. And this tucked away at the very end, "Assuming no further booking cancellations, Napier Port now has actual calls plus remining bookings totalling 81 cruise vessels for this cruise season, down from the 87 bookings reported earlier."  English teachers are also encouraged to spot the spelling error.

[Hectorplains]

Forbar negative on NPH. Their expectation is for a drop in profits of 41% to $12.4 million, log exports down 17%, container exports by 9%, and for cruise ship visits by 20%.  An "Underperform" rating is retained on the stock and they have pulled back on their one-year price target to $2.50 from $2.60.

Pip-fruit and forestry represent about three quarters of NPH's cargo revenue.  I'm picking that the log export drop will be greater and for longer.  You'd want outstanding odds on seeing logging trucks accessing the Pacific Coast route this year...and that's the key for the port's tree trade.  There are already other options (even prior to the cyclones) being pursued, for example the barge at Te Araroa, which bypass the need for Napier. 

The cruise ship income for the port is supposed to be where the growth is - that's why they increased debt to for the new wharf. Hard to know how Forbar attained a 20% drop figure?  However, previous results suggested that NPH's cruise income expectations were inflated. 

$2.50 does not look a fair price...let alone a good price for entry to me.

[Basil]

$2.50 price target 1 year hence suggests current price should be $2.20-$2.30.
Forbars forecast represents eps of 6.2 cps.  At $2.50 that's a forward PE of 40 times what is hopefully, trough year earnings.

I'm sure we'd all like to think the region would get back on its feet quickly and volumes recover such that NPH can return to something like 10 cps in earnings (PE 25) but (and I acknowledge you'd know a lot more than me Hectorplains living amongst the devastation in the region) I would think the effects will be felt for many years.   Wouldn't you agree ?

I agree 100%, NPH doesn't make a great investment case at this point in time.  I note its the main other contender apart from HLG for inclusion in the NZX50 when PPH is removed, the outcome of which company goes in is still uncertain, but pricing action in the last month tends to suggest HLG might be the slight favorite.
Possible inclusion in the NZX50 is the only thing I can see that could move the needle north for NPH but it not enough for me to engage with given all the negatives and the current metrics.

[Hectorplains]

$2.50 price target 1 year hence suggests current price should be $2.20-$2.30.
Forbars forecast represents eps of 6.2 cps.  At $2.50 that's a forward PE of 40 times what is hopefully, trough year earnings.

I'm sure we'd all like to think the region would get back on its feet quickly and volumes recover such that NPH can return to something like 10 cps in earnings (PE 25) but (and I acknowledge you'd know a lot more than me Hectorplains living amongst the devastation in the region) I would think the effects will be felt for many years.   Wouldn't you agree ?

I agree 100%, NPH doesn't make a great investment case at this point in time.  I note its the main other contender apart from HLG for inclusion in the NZX50 when PPH is removed, the outcome of which company goes in is still uncertain, but pricing action in the last month tends to suggest HLG might be the slight favorite.
Possible inclusion in the NZX50 is the only thing I can see that could move the needle north for NPH but it not enough for me to engage with given all the negatives and the current metrics.

The speed they are getting the main arterials open has been outstanding.  Highway 35 from Gisborne heading north reopened a couple of weeks ago.  There is talk of Gisborne to Napier being open in less than a month.  That is a phenomenal effort given the scale of the damage. However; 'open' for what?  Patch repairs won't handle the tonnage of timber trucks.  That'll require much greater remediation and in some places even re-routing. The hit to NPH is likely to be over at least a couple of years. 

Half year is due in about a month.  Their debt level will be interesting - they flicked off a $75m bond issue back in Sept, stating that it was to repay a portion of their existing debt.  Hopefully they have it all under control... and no Synlait like surprises.

[Basil]

Good they're making excellent progress to get the main arterial roads open.  At least that's a start in the long journey of the region's recovery.  Really hope cyclones like that are not a regular thing going forward with climate change but I have a bad feeling devastating weather events are going to occur more  frequently in the future.

[snapiti]

don't follow the ann's from this infrastruture dog, have they updated the markets that the Napier Pan Pac mill remains out of action due the the cyclone damage in Feb, this is a major user of the port.
Also log prices have dropped so much many harvest crews are on the sidelines and the ones that are working are doing so with meaningful volume output reductions.
Have they updated the market with how fruit exports are going given the Hawkesbay crops where meaningfully effected  by the storms this year, we are several months into the fruit export season so they would surely have some guidance

[winner (n)]

Snapiti

3rd quarter activities down heaps ...about 30% v pcp

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/NPH/414513/398258.pdf