SPN Southport

[Ferg]

Introduction
Southport operates the southernmost port in New Zealand at Bluff Harbour.

The major shareholder is Southland Regional Council with 66% ownership.

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 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, 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 which is at the entrance to Bluff Harbour and they use the services of Southport.  In May 2024 they secured energy supply contracts from Meridian, Contact and Mercury out to 2044.

You can see the NZAS energy usage stats on the MEL monthly releases here with an example for June 2025 here.
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:
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Derivation of Earnings:
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Debt to Equity:
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Share price tracker.....how the SP has moved relative to a rolling 12 month P/E ratio.
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Disclosure: hold.

[Ferg]

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

[Ferg]

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:
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Gross margins have rebounded from last year:
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Debts are lower than I forecast due to good free cash flow:
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[Ferg]

Here is the P/E graph which I couldn't load in the last post:

Using monthly closing prices:
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Using annual figures:
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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.

[Ferg]

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.

[Ferg]

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%.

[Otago K]

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%.

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.

[Ferg]

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

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.

[Mos]

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.

[Ferg]

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:

At 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.

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[Ferg]

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.

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.

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Not the most exciting share in the world but steady grower

Agree 100%.

[Mos]

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.
 

[Ferg]

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.

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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.

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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.

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You mentioned their growth capex of $41m over 5 years; add to that the "Significant Stay in Business Capex" from the presentation 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.

[Mos]

Great work Ferg. Really appreciate your analysis and insights on Southport.

[Mos]

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