Daily ShareChat: Freightways

By Jenny Ruth

Tuesday 3rd August 2010

Freightways is likely to experience a modest cyclical rebound in volumes over the next few quarters, says Craigs Investment Partners.

"This, coupled with a more supportive pricing environment underpin our expectations for positive earnings momentum," Craigs says.

The domestic express package business "remains challenging with fluctuating volumes," but the business-to-business segment has experienced improved volumes off a low base, the broker says.

Freightways is well positioned to benefit from the economic recovery. The key downside risks to the express package business are a deeper and more protracted economic slowdown or a change to the industry structure such as the entry of a new player.

Currently, the industry is essentially a duopoly of Freightways and the New Zealand Post/DHL joint venture who together command about 80% of the market.

The information management business, which now accounts for about 20% of earnings before interest and tax (EBIT), is experiencing organic growth between 8% and 10% a year. "This defensive earnings stream has cushioned the group's earnings," Craigs says.

The information management business also provides attractive medium-term growth prospects in both New Zealand and Australia.

Craigs is forecasting EBITDA for the year ended June was $64 million, down from $67 million the previous year. It expects this will rise to $68 million in 2011 and to $72 million in 2012.

Recommendation: Buy

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