Daily ShareChat: Freightways

The market continues to underestimate the scope for Freightways' earnings growth as economic activity recovers and volume growth accelerates along with capacity utilisation recovering, says Marcus Curley at Goldman Sachs JB Were.

His firm has raised slightly its forecast for economic growth in 2010 from 0.3% to 0.6% and expects 2.5% growth in 2011.

Curley says his analysis suggests economic growth is a key driver of courier volumes which tend to grow at about 1.5 times GDP, driven by the global trend towards "just-in-time" inventory management.

There is also a strong relationship between courier volume growth and profit margins, he says.

He has raised his forecast for Freightways' underlying net profit for the year ending June 2010 to $32.2 million from $31.6 million previously and compared with the $30.7 million the company earned in the year ended June 30. He is expecting a $37.7 million underlying net profit for 2011.

"Our revised forecasts continue to incorporate a significant cyclical earnings recovery from the second half of 2010 as express volumes rebound in line with New Zealand economic activity."

While its earnings are exposed to the economic cycle, Freightways has a strong competitive position and solid long-term growth prospects, he says.

As a result, Curley has increased his discounted cashflow valuation to $4.50 a share from $4.30 previously.

BROKER CALL:  Goldman Sachs JB Were rate Freightways (NZX: FRE ) as BUY.

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