Port of call

By Jenny Ruth

Friday 5th May 2006

Now 50 years old, Port of Tauranga went public in 1992 after a $35.3 million share issue, some previously owned by the Waikato Regional Council and the rest new shares to fund a $53 million expansion.

It is still 55% council owned. Its other major shareholder, Infratil, used to own 25% but has progressively sold down its stake to 5.3% since 2001, although Infratil managing director Lloyd Morrison still sits on the port's board.

Major developments since listing include setting up Metroport, an inland port in South Auckland; a joint venture with Northland Port to build a $65 million deep-water port at Marsden Point; and the 2002 acquisition of log handler Owens Cargo Company for $31.5 million. In December 2004, the latter was folded into a joint venture with Toll Holdings which offers stevedoring services at 11 ports.

THE NUMBERS: Port of Tauranga's shares have historically -traded at high price-to-earnings ratios and continue to do so, even though its shares have fallen steeply from their $5.90 high in October 2004 to below $4 in November 2005. That reflected the company's declining earnings momentum in 2004 and 2005 when profit was flat. More recently, the shares have recovered to as much as $5.05 in mid-March, but that's still more than 20 times 2005's earnings. A major reason for the share price recovery was Christchurch City Council's plan to buy out minority shareholders in Lyttelton Port and form a joint venture with Asia's Hutchison Port Holdings, which will run the port. This is widely viewed as the beginning of consolidation of New Zealand's ports, which have massive surplus capacity. Port of Tauranga is expected to be a major participant in that consolidation.

MANAGEMENT: The port's development since listing was led by Jon Mayson who was with the company 33 years (nine as chief executive) and who retired in October 2005. His replacement, Mark Cairns, was an internal appointment, who had headed the Toll Owens joint venture since early 2002.

CURRENT STRATEGY: Perhaps the most eye-catching of the port's strategic moves over the last decade was establishing Metroport, which aimed to compete with Ports of Auckland for container trade. The move was initially ridiculed, but the company proved sceptics wrong, winning ship visits away from the Auckland port and increasing its container volumes nearly four-fold to 438,214 20-foot equivalent units (TEUs) in 2005. The Auckland port achieved only 29% growth in container volumes over the same period to 644,306 TEUs. However, it eventually started to fight back and won three shipping services away from the Tauranga port last year, accounting for more than 35,000 TEUs a year. But Tauranga, which has significant excess capacity to handle containers, has won several new shipping services, including Hamburg Sud and Maersk services to North America and Europe, -and the new NZX consortium services to Asia. But while the company's container services attract much attention, Cairns stresses bulk cargo has always been the port's mainstay and he expects that to continue. The port has been hard hit by a downturn in forestry, with log exports through the port down 20% in 2005. However, in 2004 the company opened its $32 million coal handling facility and coal tonnage through the port rose 32.7% in 2004/05, and a further 27.8% in the six months ended December.

RECENT TRACK RECORD: After its flat result for the year ended June 2005, the port reported a 13.8% drop in net profit for the six months ended December with total trade through the port down 3.5% and container volumes down 5.2%. However, although the forestry industry continues to struggle, log exports were up 5.2% in the half year and the company expects a better second half. Analysts regard the port's earnings as having hit a cyclical low and expect the declining New Zealand dollar will boost exports through its facilities.

ANALYSTS' RECOMMENDATIONS: Most analysts take a neutral attitude towards the stock. Forsyth Barr's Greg Main has a hold recommendation, reckoning an earnings recovery is already priced in, while First NZ Capital's Rob Bode says his view is neutral relative to -other stocks, although he is positive on the earnings outlook. ABN -Amro's James Miller recommends investors buy the stock, mostly because of its potential in industry consolidation.

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