MFT - Mainfreight

[Mos]

Pretty weak performance continues in the key Americas region. Seems key to MFT truly becoming a global success story. Hold but on the fence and not topping up at this level.

[Shareguy]

Jarden commented, "We continue to see FY24 as a
trough year for earnings, with Domestic Freight growth
offsetting likely A&O margin normalisation. MFT did not
provide earnings guidance but noted satisfactory post
year-end trading in ANZ, some work to do to lift volumes
and utilisation in Europe and improvement in US
Transport is likely to take some time.
Target price lifted to $82.00 (was $80.30); Overweight
rating reiterated.

[Shareguy]

Ran into Don Braid recently at the coffee shop. Said words I liked "normalising supply chains", "improving" Got the impression that it's upwards from here.

Disc/ My largest holding on the NZX currently

[Mos]

Mainfreight doing it tough in first 15 weeks with revenue up 8.5% and NPBT down 11.2%. And that is compared to a softer year last year too. Profitability very low in USA and Europe - a lot of work to do become global success story. Potential is there but can they do it?

[Left Field]

Market not happy today. Down $6.00 as I write.

https://api.nzx.com/public/announcement/435082/attachment/423342/435082-423342.pdf

[BlackPeter]

Mainfreight doing it tough in first 15 weeks with revenue up 8.5% and NPBT down 11.2%. And that is compared to a softer year last year too. Profitability very low in USA and Europe - a lot of work to do become global success story. Potential is there but can they do it?

Mainfreight's profitability is obviously correlated to the overall economy, measured e.g. by the ANZ truckometer index, which took a nose dive last month.

That's what their earnings do show - if less goods are shipped, and they can't or don't want to reduce capacity to the same amount, than their profitability will nosedive.

So, I guess you question is non-sensical - the current situation has nothing to do with MFT's capabilities.

The answer is quite simple: If you believe that the world economy will run into the ground and never recover, then obviously MFT will need to reduce its capacity accordingly.

If you are however one of the people who learned that linear extrapolations are easy, but long term always wrong, then you might realise that things will go up again as well, and I have no doubt that a company managed as well as MFT will thrive on the economic upleg.

Hint: transport typically goes up before other industries follow. Quite simple reason: other industries need to use transport to increase their production. Given that markets seem to assume an economic upswing in 6 months or so (well, this is what my portfolio tells me), maybe now its the time to load up good transport companies.

MFT is one of them.

[Mos]

I don't believe it is that simple BP. Mainfreight have a very profitable business in New Zealand and Australia, and have had for some time. These businesses are still reasonably profitable now when the tide is out from an economic point of view. However, outside the Covid induced Supply Chain mayhem, Mainfreight have never earned strong returns in the USA or Europe. What they have achieved historically is impressive, but to kick on from here they must find a way to earn returns in these key markets that has eluded them to date. I don't think you can pin it all on economic conditions.   

[BlackPeter]

I don't believe it is that simple BP. Mainfreight have a very profitable business in New Zealand and Australia, and have had for some time. These businesses are still reasonably profitable now when the tide is out from an economic point of view. However, outside the Covid induced Supply Chain mayhem, Mainfreight have never earned strong returns in the USA or Europe. What they have achieved historically is impressive, but to kick on from here they must find a way to earn returns in these key markets that has eluded them to date. I don't think you can pin it all on economic conditions.   

I don't believe it is that simple BP.

It rarely is ... unless of course the beating up of companies during tough economic times.


Look, They started in NZ and Ossie and - as you say, they have build a great base.

They then expanded ... and most people understand that you first need to establish and grow a product or service before you can make money with it. Its called "investing".

They used to produce very satisfactory results (including in the new bases) - and lets face it, they are still profitable despite times being pretty tough. Again - have a look at the ANZ truckometer. Pretty respectable to still produce the results they do, but sure, linear extrapolation on the way down from the Covid peak gives you clearly other results.

Just wondering - if you think the economy has nothing to do with it ... why don't you just give us a list of a handful of currently thriving international transport companies, which are doing at the moment both much better than over the last couple of years as well as much better than Mainfreight :p ?

I see currently most of them in "consolidation phase", just like Mainfreight - or even a bit lower.

Can you give us one clearly outperforming Mainfreight?

[Mos]

From Craig's this morning - will come back to you BP when I have more time

MFT – Wade Gardiner was present at Eden Park for the Mainfreight ASM yesterday afternoon. MFT's trading update for the 15 weeks to mid-July initially sent the shares down 10% before closing off their lows at $71.20 (-8%). MFT Group revenue was +8.5% for the period but PBT declined 11.2% (-$10.5m). This was a weaker start to the year than anticipated and market consensus for FY25F PBT was for +6.2% growth to $420m prior to the ASM. The weakness appears broad-based from a geographical perspective with Australia the exception (revenue +17.5%, PBT +7%, margins 80bip weaker at 7.6%). From a product perspective Transport was resilient but Warehousing remains problematic which reflects a combination of lower activity levels & over capacity in some areas. Air & Ocean margins remain under pressure with margins down from 8.3% to 6% YoY. As Wade Gardiner's title suggests ("It's a marathon not a sprint") it is still early days in the FY25 year but given weakness in the NZ economy (revenue was flat, PBT -20%) and the time it may take to turnaround performance in US/Europe he has lowered his FY25F PBT from $422m to $397m (-6%). Gardiner's revised Target Price is $72.70 based off a 50:50 combination of 1) rolling 1 Yr Fwd PE of 21x (consistent with peers, implies $67.20) and his DCF valuation of $78.20. Neutral recommendation retained.

[Shareguy]

Sales up but profit down. More work to do Don says.

Craig's take

A marathon, not a sprint
ASM trading update: YTD PBT down 11%
 At the ASM today MFT provided a trading update for the 15 weeks to mid-July. Group revenue increased 8.5%, but PBT declined 11.2% (-$10.5m). This was a far weaker start to the year than we had expected, and compares to existing market consensus PBT for FY25 of +6.2% to $420m (CIPe $422m). Revenue growth was in line with FY market consensus (+8.1%), but margins were down across all product segments. Warehouse margins were very weak at 4.0% (vs 5.9% pcp), and Air & Ocean margins were 6.0% (vs 8.3% pcp). Across the geographies the Australian business was again the highlight and posted the only positive PBT growth (+7.0%), although margins across all areas declined on pcp.
The weak Warehouse result is a continuation of that seen in 2H 24, with low levels of utilisation and activity, particularly in Europe. While the timing is hard to know, we do expect some improvement through the remainder of the year as activity increases and new customers are added in Europe, and as overflow sites are exited in Australia. The Air & Ocean margins are of more concern as we think some of the margin decline reflects competitive dynamics and excess shipping capacity, particularly in the US and Asian businesses. It is hard to see a quick resolution to this but we have seen A/O margin volatility in the past when freight prices have been changing, and global logistics peer, DSV, reported their Q2 results yesterday with fairly stable 'Air & Sea' margins.
CIPe for flat PBT on pcp
With a $10.5m headwind to start the year our existing forecast for FY25 PBT now seems optimistic. Accordingly we have lowered our PBT forecast from $422m to $397m. This is broadly flat on FY24, and implies +4% PBT growth for the remainder of FY25.
Price Target $72.70 (prev $74.85). Neutral rating retained
On our revised estimates MFT is trading on a rolling forward PE of 24.5x, Our Price Target remains based on the average of 1) our forward DCF valuation ($78.20, WACC 8.4%) to incorporate a longer-term view of capital intensity, and 2) international peer PE multiples (21.0x, $67.20). The change in our Price Target reflects forecast changes offset by a reduction in interest rates since our last update, and an increase in peer multiples from 18x to 21x

[Shareguy]

A mixed bag is how I see the investor day.

NZ has been a real drag while Australia has continued to increase in both revenue and PBT.

Overall sales up 8.5 percent but PBT below expectations and down 9 percent against last year.

It's a downgrade and possibly more to come in this cycle.  I'm sensing we might be over the worst of it, certainly in NZ. The prize in the Americas is huge and Don is determined.

Don said that volume is improving across most operations including NZ with confidence that the current upward trajectory will continue.

This is a quality growth company with great management and a history of exceeding expectations. Its trading in line with global peers and based on estimates is a forward PE of 24.

[BlackPeter]

A mixed bag is how I see the investor day.

NZ has been a real drag while Australia has continued to increase in both revenue and PBT.

Overall sales up 8.5 percent but PBT below expectations and down 9 percent against last year.

It's a downgrade and possibly more to come in this cycle.  I'm sensing we might be over the worst of it, certainly in NZ. The prize in the Americas is huge and Don is determined.

Don said that volume is improving across most operations including NZ with confidence that the current upward trajectory will continue.

This is a quality growth company with great management and a history of exceeding expectations. Its trading in line with global peers and based on estimates is a forward PE of 24.

Here is the presentation:

https://api.nzx.com/public/announcement/439631/attachment/429043/439631-429043.pdf

... and yes, while PBIT is going to be down, its not really a downgrade. Pretty much in line with analyst consensus, which by the way predicts as well an increase of NPAT. Haven't modelled the numbers myself, but well possible that their tax payments dropped faster than their profit did. Tax is always a lagging payment ... and they might be now through the Covid hump.


Anyway - one of a small number of really outstanding NZ businesses with  a shareprice probably a fair reflection of its value.

Expect them to go up over the coming recovery, though not really expecting to break through the 2021 heights anytime soon. But hey, this is just me trying to predict what the hype curve might do, and I never was good in that particular discipline.

Discl: used to hold a XL parcel until July and sold half of them. Happy to see the sales proceedings growing faster than the MFT shares (actually MFT dropped), but as well happy to keep the other half in MFT.
.
Great company ... adding long term growth and relative stability into any portfolio.

[Shareguy]

Here is the presentation:

https://api.nzx.com/public/announcement/439631/attachment/429043/439631-429043.pdf

... and yes, while PBIT is going to be down, its not really a downgrade. Pretty much in line with analyst consensus, which by the way predicts as well an increase of NPAT. Haven't modelled the numbers myself, but well possible that their tax payments dropped faster than their profit did. Tax is always a lagging payment ... and they might be now through the Covid hump.


Anyway - one of a small number of really outstanding NZ businesses with  a shareprice probably a fair reflection of its value.

Expect them to go up over the coming recovery, though not really expecting to break through the 2021 heights anytime soon. But hey, this is just me trying to predict what the hype curve might do, and I never was good in that particular discipline.

Discl: used to hold a XL parcel until July and sold half of them. Happy to see the sales proceedings growing faster than the MFT shares (actually MFT dropped), but as well happy to keep the other half in MFT.
.
Great company ... adding long term growth and relative stability into any portfolio.

I have only seen the FB research so far and they stated it missed on PBT. As far as NPAT goes FB also forecasting less than last year. ($270m against $276m). It's only one analyst, and we agree that history says they could be wrong.

The market likes the volume growth and in a falling market is a great outcome. Don says they are growing market share and working on profit.

With the OCR cuts we should see increased demand in NZ. Confidence is returning and it's time for the NZX to shine.

Fair value currently for a quality stock. But agree it's upwards from here......

[BlackPeter]

I have only seen the FB research so far and they stated it missed on PBT. As far as NPAT goes FB also forecasting less than last year. ($270m against $276m). It's only one analyst, and we agree that history says they could be wrong.

The market likes the volume growth and in a falling market is a great outcome. Don says they are growing market share and working on profit.

With the OCR cuts we should see increased demand in NZ. Confidence is returning and it's time for the NZX to shine.

Fair value currently for a quality stock. But agree it's upwards from here......

Unless I specify a source my numbers are analyst consensus from market screener. They still show a growing NPAT (they call it Net Income) for FY2025: https://www.marketscreener.com/quote/stock/MAINFREIGHT-LIMITED-6492059/finances/

But anyway - individual analyst are as often wrong as they are right .. and so is the analyst consensus. The only thing it is good for is to define the current market expectations. It does NOT indicate what is really going to happen in the future.

That's the thing with the future, nobody can predict it ;

[Shareguy]

Not a lot new in the release at the headline level given MFT provided a trading update in Dallas last month

In terms of outlook commentary.
   "Challenging trading conditions continue in all regions, Strong sales activity levels continue with a number of customer gains committed for second half, Capex expenditure and lease commitments being aligned with customer growth – a number of new sites/expansions continue. Confidence of further revenue and profitability improvements, Well-positioned for improving economic conditions when it arises"