Port of Tauranga capital review looms closer as capex 'bubble' draws to close

Port of Tauranga [NZX: POT] has confirmed a review of its capital structure is planned for 2017, by which time New Zealand's biggest port operator will be over the hump of its spending programme and able to contemplate options such as a return to shareholders.

The company will have completed a five-year, $350 million capital expenditure programme in 2017, including dredging its shipping lanes to accommodate larger ships, adding cranes, straddle carriers and tugs, expanding its wharf and marshalling areas, and buying property.

Revenue from what will be the first New Zealand port able to host container ships with a capacity of 6500 TEUs (20-foot equivalent units) at low-water tides will begin to kick in next year, with freight sent to the port by Kotahi, the logistics venture owned by Fonterra Cooperative Group and Silver Fern Farms.

The guarantee of freight "has allowed our board to be very rational about this – it's not just build it and hope they will come," said chief executive Mark Cairns.

Port of Tauranga's board flagged in early 2015 its intention to review its capital structure in 2017 and the company affirmed the plan to analysts yesterday. A special dividend could be an effective way to return any funds to shareholders because the company has accumulated imputation credits. The imputation credit account stood at $67.9 million at the end of the 2015 financial year, although it has since declared an interim 2016 dividend of 23c a share, of which about 8.9c was imputed, or tax paid.

First-half profit dropped 9% to $38.6 million as export log volumes fell and after the year-earlier result was inflated by a one-time gain. Operating income fell 9.8% to $121.9m while operating earnings before interest, tax, depreciation and amortisation rose 3.4% to $62m.

The company warned shareholders at their annual meeting last October that earnings growth may stall in 2016 because of uncertainty about log and dairy export volumes, which could counter the benefits of increased container traffic. Yesterday, the company affirmed that full-year profit was likely to be unchanged at about $79 million. In the first half, log exports fell 16% to 2.4 million tonnes, although dairy volumes were up 29% and container volumes rose about 10%  to 470,928 TEUs.

Port of Tauranga is aiming to be the key hub port in the North Island servicing a future shipping trade expected to be characterised by fewer, larger vessels that need deeper berths. Freight would be brought around the coast from smaller ports to fill the big ships or carried by rail or road. The company said that it is about a third of the way through its project to dredge Tauranga's harbour channels to a depth of 14.5 metres inside the harbour and 15.8 metres outside the entrance, work that's expected to be completed in July.

The shares fell 0.3% to $18 yesterday and have edged up 2.6% in the past 12 months. The stock is rated a 'sell' based on the consensus of five analysts polled by Reuters.

(BusinessDesk)