EUR 850.00 For Business Accounts Only

Morningstar | Port of Tauranga Wraps Up Another Good Year; FVE up 5%

Wide-moat Port of Tauranga had another good year, with net profit after tax up 13% to NZD 94 million for fiscal 2018, in line with our expectations and the midpoint of guidance. The outlook remains positive as benefits from the hub port strategy and the recent upgrade drive ongoing growth in market share. Fiscal 2019 earnings guidance will be given at the annual shareholders meeting on Oct. 17. We increase our forecasts modestly and lift our fair value estimate 5% to NZD 4.00. At current prices, the port is overvalued. Key medium-term risks include the potential for an economic downturn hurting trade volumes, increasing investment by competing ports to try to take back market share, and industrial relations reform that threatens Tauranga's productivity advantage over peers.

Total trade volumes increased 10%, with containers up 9% to 1.2 million twenty-foot equivalent units, or TEUs. Exports rose 8% to 15.4 million tonnes on strong growth in logs and dairy, while imports rose 14% to 9 million tonnes, with widespread strength across most categories. The hub port strategy, where Tauranga acts as a link between small local ports and large foreign ports, is clearly working, with transhipment of containers up 23%. An outlook for ongoing growth led management to order the port's ninth crane, to be delivered in 2020, and start planning for the next stage of expansion. The port has enough surplus land to eventually handle 3 million TEUs. The port is well set up for long-term growth, with plenty of surplus land, astute management and efficient operations. The main threat to growth would be a global economic downturn. Plans from rival ports such as Ports of Auckland to expand their operations could also detract.

Management can rightly be proud of Tauranga's high productivity. Net crane rates of 35.5 moves per hour exceed the national average of 33.5, and are well ahead of the Australian average of 28.9. In this regard, industrial reform is a real risk.

Proposed changes to employment law could stop Tauranga from opting out of multi-employer collective agreements. This could see Tauranga forced to accept the same employment terms as other ports, and face more strikes.

Port of Tauranga's balance sheet remains in good condition with gearing, measured as net debt/(net debt + equity), falling 250 basis points to 26.2% following a NZD 226 million upward revaluation of the port. Capital expenditure was just NZD 17 million in fiscal 2018, but will step back up to NZD 60 million in 2019 on a Coda warehouse, new gantry crane and straddle carriers. Capital expenditure is expected to fall back towards NZD 30 million in 2020.