Morningstar | POT Now Trading Way Above FVE
Port of Tauranga’s share price continues to defy gravity, rising around 20% in the past six months as global bond yields fall and equities rally. At the risk of sounding like a broken record, there’s no change in our view the port is overvalued. It offers a paltry yield of 2.2% fully imputed. While EPS growth is respectable at around 7% per year in coming years, this doesn’t justify the massive P/E ratio of 41 based on the current NZD 6 share price. There is no change to our NZD 4.00 per share fair value estimate. Currently, the stock trades at a 50% premium to our valuation.Port of Tauranga has a long growth runway as it takes market share from space-constrained competitor ports. But import and export volume growth won’t remain strong forever. A global economic downturn, or even just a China downturn, would significantly impact demand for New Zealand’s forestry and food exports, while a domestic downturn would hurt import volumes.
We can’t deny though that the port is a high-quality company with competitive advantages likely to last decades. These advantages stem from being the largest and most efficient port in New Zealand. Tauranga can accept larger ships than competitors, has high net crane rates, and a nonunionised workforce. These factors drive cost savings for importing and exporting customers, making Port of Tauranga the partner of choice. With plenty of land, the port can easily upgrade to accommodate long-term growth. Port of Tauranga is a stock we’d like to own, but only at the right price.
Port of Tauranga and its subsdiaries operate in four segments: Port Operations, which provides and manages port services, and cargo handling facilities through the Port of Tauranga, MetroPort and the Timaru Container Terminal; Property Services, which consists of managing and maintaining Co.'s property assets; Marshalling Services, which consists of the contracted terminal operations, stevedoring, marshalling and scaling activities of Co.'s subsidiary, Quality Marshalling (Mount Maunganui) Limited; as well as Transport Services, which consists of the road transport and freight handling activities, of Co.'s subsidiaries, Tapper Transport Limited, Tapper SIP Limited and MetroPack Limited.
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