EUR 850.00 For Business Accounts Only

Morningstar | POT Still Too Expensive

We make no changes to our fair value estimate for Port of Tauranga, or POT, of NZD 4.00 per share, and consider it overvalued at current prices around NZD 4.93. Its share price has held up well through the recent market correction, leaving the window open for shareholders wanting to get out at a good price. In the past three months, the Port’s share price has been relatively flat, compared with a 6% fall in the NZX 50, an 11% fall in the Australian S&P/ASX 200 and a 14% fall in the U.S. S&P 500. As an economically sensitive stock trading on a high P/E of 33 times, the Port’s share price is at risk if global economies roll over.

There’s nothing to change our view that Port of Tauranga has a wide economic moat, underpinned by structural competitive advantages over smaller, less efficient and more space constrained ports that should see it continue to win market share. But growth in volumes will not be a straight line. Offshore demand for New Zealand’s forestry and food exports would fall in a global recession, while many imports are likely to face headwinds as New Zealand’s housing market deflates and depresses consumer spending. Should volumes fall for a period, operating leverage will go into reverse as costs are mostly fixed, meaning the fall in earnings would be magnified. This scenario would be inconsistent with the Port's high P/E ratio.