Freightways shares drop on dividend reinvestment plan

Monday 17th August 2009

Shares of Freightways declined after the biggest courier company on the NZX announced an underwritten dividend reinvestment plan as part of its measures to preserve cash to strengthen its balance sheet.

The stock fell 5.9% to $3.20, the lowest in almost two weeks, after the announcement, which coincided with Freightways’ full-year results. Profit gained 7% to NZ$34.6 million, or 26 cents a share, it said in a statement. The result included a one-time gain of $3.9 million from the sale and lease back of a Wellington property.

Freightways said it signed an underwriting agreement for the DRP with Forsyth Barr, offering the same 2.5% discount as shareholders will get to calculate the shares to be issued.

The DRP was being introduced “in light of the current, exceptionally uncertain operating environment” and will strengthen the balance sheet “by introducing new equity” and preserving cash which otherwise would be paid out in dividends, the company said. The capital management initiative “makes you question what the board is seeing that means they need to raise more equity,” said Paul Harrison, who helps manage NZ$150 million at BT Funds Management.

The move “will not be well received,” he said. The company’s results “seemed to be in line” with expectations, he added. Managing director Dean Bracewell wasn’t immediately available to provide more details about how the DRP and underwrite will work.

The company raised about $50 million in April-May from a fully underwritten share placement to institutions at a discount and a share purchase plan for small investors. The placement, underwritten by Goldman Sachs JBWere, and the SPP pare Freightways’ debt to $171.3 million, or 57% of book equity, from 72%.

Freightways gets the bulk of its revenue from its core express package businesses New Zealand Couriers, Poste Haste Couriers, Castle Parcels, NOW Couriers, SUB60, Security Express and Kiwi Express.

The company didn’t make a specific forecast for 2010 other than to predict capital spending of about $13 million, “significantly lower” than in 2009, when it spent $21 million. “The current economic downturn has translated into lower express package volumes from some of Freightways’ existing customers,” chairman Wayne Boyd and managing director Bracewell said in the statement.

Pending a recovery in the domestic economy, “performance of the express package and business mail division is expected to continue to track behind the prior year.”

Freightways cut its final dividend to 8.5 cents a share from 9.25 cents a year earlier. Earnings from express packages was below the year earlier period in the latest 12 months, with the fourth quarter “particularly quiet” versus the same period of 2008.

Its DX Mail business, which competes directly with NZ Post, had earnings "well down” on a year earlier. The company’s information management unit, which operates in Australia and New Zealand, hasn’t been dented by the economic downturn, posting an earnings gain from the previous year, Freightways said.

Businesswire.co.nz

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