Port of Tauranga Limited

Company Overview: New Zealand-based company, Port of Tauranga Limited (NZX: POT) operates a port and natural freight gateway to and from international markets for various New Zealand's businesses. The Company carries out the business through the provision of wharf facilities, land and buildings, for the storage and transit of import and export cargo, berthage, cranes, tugs and pilot services for customers. The three segments are Port Operations, Property Services and Marshalling Services. The Port Operations segment's operations consist of providing and managing port services, and cargo handling facilities through the Port of Tauranga and MetroPort. The Property Services segment consists of managing and maintaining the port's property assets. The Marshalling Services segment consists of the contracted terminal operations, stevedoring, marshalling, and scaling activities of Quality Marshalling (Mount Maunganui) Limited, a subsidiary of the Company.

POT Details

Port of Tauranga Limited (NZX: POT) is a New Zealand-based largest port and international freight gateway. The location of the port is central to key export commodity sources. The company has a market capitalisation of ~$5.13 billion as on 1^st February 2021.

Results Performance (Year Ended June 30, 2020)

Group’s revenue for the year ended 30 June 2020 stood at $302 million, as compared to $313.3 million in the previous year. Net profit after tax for the period stood at $90 million as against $100.6 million in the prior year, a decline of 10.5% (y-o-y). Group EBITDA (earnings before interest, tax, depreciation and amortization) stood at $166.5 million, a decrease of 8.1% on the previous year. The period observed de-growth in total trade by 7.8% to 24.8 million tonnes. However, container volumes for the period observed 1.5% increase to 1,251,741 TEUs.

Exhibit 1: Income Statement

Key Data (Source: Company Reports)

Under the import and export data, exports decreased by 8.0% in volume to nearly 15.8 million tonnes and imports decreased by 7.8% to just over 9.0 million tonnes by the end of the financial year 2020. This can be attributed to the decline in log volumes in the first-half due to lower international prices and demand.

Forestry was deemed a non-essential industry during the lockdown, and log inventory stored at the Mount Maunganui wharves could be shipped to make way for essential cargoes, but cart-in did not resume through the port gates until early May. Overall, log volumes decreased by 21.5% compared with the previous year, to 5.5 million tonnes. Sawn timber exports decreased by 10.4% in volume.

Exhibit 2: Log Exports Data

Log Exports Data (Source: Company Reports)

Dairy product exports increased by 1.7% to nearly 2.4 million tonnes. Meat products increased by 15.4% in volume. Protein and feed imports increased by 20.1% in volume, while imported fertilisers remained steady in volume compared with the previous year. Grain imports increased by 26.1% in volume. Oil product imports decreased by 12.3% in volume, reflecting the economic conditions.

Exhibit 3: Key Export Numbers

(Source: Company Reports)

The Board of Directors declared a final dividend of 6.4 cents per share, taking the full-year ordinary dividend to 12.4 cents per share (90% of Underlying Net Profit After Tax), maintaining the existing ordinary dividend policy of paying between 70% and 100% of Underlying Net Profit After Tax.

Exhibit 4: Dividend Data

(Source: Company Reports)

Top 10 Shareholders: The top 10 shareholders have been highlighted in the table, which together forms around 56.40% of the total shareholding. Quayside Securities Ltd. and Kotahi Logistics LP are holding a maximum stake in the company at 54.17% and 1.25%, respectively, as provided in the exhibit below:

Exhibit 5: Top 10 Shareholders

(Source: Refinitiv (Thomson Reuters)), Analysis by Kalkine Group

A Quick Look at Key Metrics: The company’s gross margin and EBITDA margin for FY20 stood at 76.3% and 53.8%, better than the industry median of 64.2% and 51.8%, respectively, implying decent operating efficiency. Its cash cycle for FY20 stood at 15.9 days, lower than the industry median of 25.5 days, implying that the company managed efficiently its asset-liability. Return on Invested Capital for FY20 stood at 6.0%.

Exhibit 6: Key Metrics

(Source: Refinitiv (Thomson Reuters)), Analysis by Kalkine Group

Outlook:

POT has extended a strategic alliance with the country’s biggest container exporter, Kotahi, till 2031. It also has long-term freight volume agreements in place with other key exporters like Oji Fibre Solutions and Zespri International. The company mentioned that these long-term partnerships provide POT certainty with respect to future planning, and to expand capacity in a way that matches customer demand.

The company on 23 September 2020 announced that it will be issuing $100 million of wholesale bonds (maturity date 29 September 2025), following an institutional bookbuild for its offer of Five-Year Fixed Rate Notes. The interest rate of 1.02% per annum has been set for the Fixed Rate Notes, reflecting a margin of 0.90% per annum over the underlying swap rate. The move will help further strengthen the balance sheet.

Exhibit 7: Export Projections

(Source: Company Reports)

The company is in a solid position to counter the impact of the pandemic. Most of the key exports, which include meat, kiwifruit, and dairy products, are considered important cargoes. Imports of food, oil products, and medical supplies are also vital cargoes. There have been positive signs of trade activities emerging from China as a business there returned to normal and demand has increased. This development augurs well for New Zealand’s major log export market. The company expects cargo volumes to recover over the next three years with dairy products and Kiwi fruit exports likely to be the strongest.

Exhibit 8: Kiwifruit-Zespri’s Forecast

(Source: Company Reports)

Valuation Methodology: EV/Sales Based Relative Valuation (Illustrative) 

EV/Sales Based Relative Valuation (Source: Refinitiv (Thomson Reuters))

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Technical Overview:

Weekly Chart –

Source: Refinitiv (Thomson Reuters)

Note: Purple colour lines are Bollinger Bands® with the upper band suggesting overbought status while the lower band oversold status, and yellow lines are Fibonacci retracement lines which measure price rebound and backtrack. https://www.bollingerbands.com/

The stock on the first trading session of the ongoing week has given a stronger close with a gain of 0.13%, forming a ‘Doji’ candle with opening and closing price remains the same. The technical indicator RSI with a reading around 54 and a flattish curve at the end, suggests flattening of bullish momentum.

Going forward, the stock may have resistance around the previous high of $8.15 whereas support could be at the converging point of 20 periods SMA and the 23.6% retracement level of $7.38.

Stock Recommendation:

In the coming period, the company is expected to see improvement in the earnings with the increase in trade activities, especially in  China. POT is a major international hub port that will see increased cargo with trading activities returning to normal in the near future.

We have applied EV/Sales multiple Based relative valuation (on an illustrative basis) and the target price reflects a rise of low double-digit (in % terms). We have applied a slight discount to the peer median EV/Sales (NTM Trading multiple) considering its higher total debt, lower ROE and risks related to COVID-19 (like shipping cancellations and reduced cargo volumes).  

Hence, we give a “Buy” recommendation on the stock at the current market price of NZ$7.55 per share, up by 0.13% on February 1, 2021.

POT Daily Technical Chart (Source: Refinitiv (Thomson Reuters))

Disclaimer

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