Global transport minnows still make a solid investment feed

Friday 23rd June 2000

But the sector warns about uncertainty ahead, PETER V O'BRIEN writes

The transport sector's position as a guide to the condition of the overall economy was confirmed in recent results from listed companies but not fully reflected in share-price movements.

Prices for the three companies on Wednesday and the corresponding figures a year earlier when The National Business Review assessed the sector are shown in the table.

All the companies improved profit after removal of unusual items but the better economic conditions came with a warning.

Tranz Rail's report for the nine months ended March said net profit increased 9.2% to $38.5 million compared with the corresponding period of the previous year.

It said a 5.8% lift in revenue from the carriage of manufactured products, including a wide range of customers operating mainly in the domestic market, reflected a stronger New Zealand economy.

The report made other references to the economy's recovery.

Owens Group's preliminary report for the year ended March included a cautionary comment from chairman Norman Geary who said business confidence had declined recently, as had business intentions for investment in people, plant and equipment.

"Uncertainty prevails. There is a growing perception that political support for business is diminishing. This has yet to be substantiated. If this becomes a reality tougher times could be ahead for the New Zealand economy."

Owens reported an operating profit before tax and abnormals of $6.52 million, which was an increase of 59.5% on the comparable result of $4.09 million for the previous nine-month period.

The total revenue of $349.5 million was split into $218.35 million from New Zealand and $131.15 million from Australia.

In the previous year, the total revenue was $365.17 million, with the split being $230.59 million from New Zealand and $134.58 million from Australia, but sales from continuing activities in the latest year increased $15.3 million, or 4.6%.

Mr Geary said margins improved strongly as a result of sound management practices.

Owens Group and Tranz Rail made regular references to improved efficiency as a result of restructuring.

Mr Geary said Owens' restructuring had involved a "thorough review of all operations, structures, systems, costs and customer service, with appropriate measures taken, under way or planned where necessary to achieve improvements."

He said in the past the group had pursued decentralisation policies that were to the detriment of sound customer services and efficient and effective operations.

The company was now totally dedicated to operating as an integrated group with quite different structures and policies to the benefit of customers and profitability.

Tranz Rail's operating costs for the nine months increased $14.3 million, or 4%, but the company said the increase compared favourably with the 13% lift in freight revenue from tonne kilometres handled.

Some of any company's cost increases are unavoidable but others can be controlled. In Tranz Rail's case an item classified as "other expenses" decreased in response to the company's drive to reduce discretionary expenditure.

Holding costs in a company with Tranz Rail's scale of operations can be difficult.

A summary of the group's activities said freight and passenger services utilised 3900 route-km of track, about 350 locomotives, 6000 wagons, 160 carriages (passenger railcars), 160 self-propelled passenger railcars, 3500 shipping containers and three roll-on roll-off ferries, increasing to four during the summer.

That is minnow stuff compared with massive railways operations in other countries but it is big in the New Zealand context, although we have only one railways system.

Investors have downgraded the listed transport companies over the past two years but two - Mainfreight and Tranz Rail - enjoyed share price improvements when the timespan is considered on a 12- month basis.

It is questionable to what extent individual investors, as opposed to professional managers, appreciate the international operations of the transport companies lowers the reliance on domestic economic activity.

Tranz Rail owns 27% of Australian Transport Network which operates rail freight services in Tasmania. Owens' Australian activities were noted earlier.

Mainfreight has businesses in Australia and last year bought a 49.5% holding in Caro Trans International, a New Jersey-based US seafreight business, and in April the company acquired another Australian domestic freight-forwarding operation.

New Zealand-based activities contributed $199.15 million of the total revenue of $312.61 million last year and Australia $113,46 million.

The transport sector is one of the least glamorous groups on the Stock Exchange (assuming any New Zealand industrial sector could be considered as glamorous) but it provides a solid service-based balance to any share portfolio.

TRANSPORT COMPANIES

Company	Price 22.00 (c)	Price 11.6.99 (c)	% change	2000 high (c)	2000 low (c)
Mainfreight	170	155	+9.7	200	155
Owens Group	108	148	-27.0	126	95
Tranz Rail	370	334	+10.8	389	265
NZSE 40 cap	2029.89	2120.11	-4.3	2173.76	1956.46

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