Daily ShareChat: Mainfreight

By Jenny Ruth

Friday 27th November 2009

Mainfreight's operating profit margins were ahead of his forecasts in almost all its divisions although revenues were softer, says Geoff Zame, an analyst at Craigs Investment Partners.

The company reported a 19% drop in second quarter sales and a 9% fall in operating earnings or earnings before interest, tax, depreciation and amortisation (EBITDA). Its EBITDA margin improved to 6.4% from 4.7%, Zame says.

Zame says the improved margins reflect cost cutting initiatives, the lack of bonus payments to staff and the write-off in the March quarter of surplus warehousing capacity in Australia which had been dragging earnings down.

He says post-balance date trading suggests a further improvement but the full-year result will be sensitive to a number of factors including whether volumes hold up in the fourth quarter.

"We remain of the view that Mainfreight is a quality cyclical play that is well-leveraged to an expected steady recovery in economic activity - particularly given around 70% of its EBITDA is generated from its Australasian domestic businesses where it has a strong brand and market position in a fragmented industry," Zame says.

"Mainfreight's well-covered dividend and focused management team provide further comfort for investors," he says. The company will pay an 8.5 cents per share dividend on December 11. Zame is forecasting earnings per share for the full year will be 18.5 cents.

BROKER CALL: Craigs Investment Partners rate Mainfreight as buy.

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