Port of Tauranga, 'bluest of NZ blue chips' achieves record volumes, earns 'sell' rating

Port of Tauranga has transformed itself into Australasia's most efficient port. Photo / Alan Gibson

Port of Tauranga has transformed itself into Australasia's most efficient port and broken records for cargo volumes but analysts struggle to put a 'buy' recommendation on its shares.

New Zealand's biggest port company today posted a 7.9 per cent gain in annual profit to $83.4 million, at the top of its guidance, in a year when total trade rose 10 per cent to a record 22.2 million tonnes. Profit was just below the estimate of $84.1m from brokerage Forsyth Barr, which has an 'underperform' rating on the stock.

It will pay a special dividend of 5 cents a share, the second payment under a plan to return up to $140m to shareholders over four years and says it expects further growth in volumes and earnings this year. Over the past six years, it has hoovered up 55 per cent of the nation's international cargo volume growth, more than four times its nearest rival.

The shares rose 4.3 per cent to $4.65 and have gained 22 per cent in the past 12 months, almost four times the increase of the S&P/NZX50 Index. But good news is already baked into its stock, which trades at 36 times consensus 2018 earnings, while the S&P/NZX50 Index is at about 18 times.

"It's the bluest of blue-chips - up there with Auckland Airport in terms of key infrastructure," said Mark Lister, private wealth manager at Craigs Investment Partners. "It's an exceptionally good quality company across the board. The infrastructure assets they own are irreplaceable, it is exceptionally efficient and has a huge amount of land for expansion in proximity to its wharves. The bad news is it is exceptionally high priced. Analysts struggle to slap a buy rating on it."

Port of Tauranga, which is 54 per cent owned by the Bay of Plenty Regional Council, has attempted to optimise its shares. Its five-for-one share split last October increased shares on issue to 681 million, giving it greater liquidity. Since the split, daily share trading has increased by 45 per cent and the number of shareholders of the company has grown by 14 per cent to 12,162, it said today.

The company operates New Zealand's most productive container terminal, with productivity which is 59 per cent higher than the average of Australian ports, based on Ministry of Transport figures. It handled a record 1.08 million containers in the latest year, up about 14 per cent from 2016 levels.

Log volumes rose 20 per cent to 5.49 million JASM, dairy volumes gained 4.9 per cent to 2.2 million tonnes, although kiwifruit volumes slipped 1.4 per cent to 982,000 tonnes after a poor growing season. Oil products rose 10.4 per cent to 1.4 million tonnes, and grain and dairy food supplements gained 7.6 per cent to 1.16 million tonnes.

Growth in cargo volumes was driven by an 8 per cent gain in exports to 14.1 million tonnes and a 14 per cent gain in imports to 8 million tonnes. Port of Tauranga has dredged its harbour channels to accommodate the next generation of bigger ships, putting it in prime position to become the nation's major hub port.

Profit included a $14.6m contribution from Port of Tauranga's seven associate or subsidiaries, up 4.8 per cent on the year. The investments reflect the company's reach across the country including 50 per cent of Northport, 50 per cent of Prime Port Timaru, 50.1 per cent of Timaru Container Terminal, 50 per cent of logistics group Coda and long-term agreements with strategic partners such as Kotaho Logistics, owned by Fonterra Cooperative Group and Silver Fern Farms.

"Our focus now is to continue to optimise productivity, remove waste from the supply chain and work with our partners to plan ahead," said chief executive Mark Cairns said. Guidance for 2018 earnings will be given at the annual meeting on October 19.

Craig's Lister says the high share price reflects that "you don't get quality companies for cheap."

"The outlook is bright but from here, growth in the share price is likely to be aligned with earnings growth," he said. "With single digit earnings growth you're not going to see double-digit share price growth."