Mainfreight shares fall to 4-month low on first-half results, still seen 'fully priced'

Mainfreight shares fell to a four-month low after the transport and logistics group posted first-half results that missed its own expectations, but is still trading at a high enough multiple to leave it vulnerable to any further disappointment.

Profit rose to $42.2 million in the six months ended Sept. 30 from $41.8 million a year earlier, the Auckland-based company said today. Sales rose to $1.2 billion from $1.1 billion. The first six months of the year were characterised by as strong trading in Australia and New Zealand, and improving results in Europe which were offset by weaker results in the Americas and Asia.

The shares dropped 2 percent to $23.63, having gained about 16 percent this year, keeping pace with the S&P/NZX 50 Index. The stock is trading at around 20 times 2018 full-year earnings per share and Mainfreight said today it expects an improvement in full-year profit.

"The shares are pretty fully priced, allowing for no hiccups in the second half," said Greg Smith, head of research at Fat Prophets in Auckland. "Management has set the bar high for the second half."

Smith said overall, the first-half results "were a bit of a mixed bag of hits and misses" with Australia "going great guns" and New Zealand performing well despite costs associated with the Kaikoura earthquake.

The first-half included some $124.4 million "inhibitors" that restrained earnings, Mainfreight said in a presentation. That included Kaikoura earthquake transit issues, the Easter holiday falling in April, a reduction in air freight tonnage, costs of a new warehouse and software. It made strong market share and earnings gains in Australia and said trading improved in all regions in September and October, the first two months of the second half.

"We expect this to continue with strong pre‐Christmas volumes across the global network," it said.

Mainfreight declared an interim dividend of 19 cents a share, up 2 cents from a year earlier, saying even though it was disappointed in the first-half result it had "ongoing confidence for further improvement at the year-end result," with a stand-out full-year result expected from Australia.

"Our Australian businesses have significant momentum, and we expect full-year results for this region to be at record levels," the company said today. "Our European businesses continue to outperform the year prior, and we are seeing incremental improvements in Asia and the Americas as our new leadership teams settle into their roles."

In New Zealand, revenue rose 10 percent to $317 million and earnings before interest, tax, depreciation and amortisation gained 3.5 percent to $38 million. Its domestic operations faced additional costs associated with servicing inter-Island freight movements via road and coastal shipping following the Kaikoura earthquakes last November. Against that, Mainfreight enjoyed "stronger intra-Island volumes, together with an expanded and improving Logistics warehousing operation."

Australian sales rose about 14 percent to A$292.9 million and ebitda jumped 29 percent to A$20.8 million on the back of "strong sales improvement across our domestic and warehousing divisions," it said.

"Both domestic transport volumes and logistics warehousing activity continue to increase as the pre-Christmas season influences October and November trading," it said. "Air & ocean activity remains subdued compared to the prior period."

Mainfreight's Asian operations recorded a 20 percent jump in sales to US$37.6 million but ebitda tumbled 53 percent to US$2 million in the first half, as gross margins "were adversely affected by the decline in inter-company airfreight revenue."

"Senior management changes took effect from early October, with an ongoing focus on branch profitability improvement," it said.

In the Americas, sales fell 10 percent to US$203 million and ebitda fell 14 percent to $8.4 million, partly reflecting the loss of "a significant airfreight import account" from its air & ocean division. Its domestic transport and logistics divisions "did not achieve trading expectations during the period" while at its CaroTrans wholesale business, revenue was "stable compared to the prior period, halting the decline of the previous two years."

Still, it said activity in all its US operations picked up in September and October and it expected to see results for the full year in line with the 2017 result.

In Europe, sales rose 19 percent to 163 million euros and earnings gained 9.8 percent to 8.4 million euros. Trading through October and November remains ahead of the year prior, it said.

(BusinessDesk)