Freightways Ltd: 2010 Half Year profit commentary

The half year profit to December 31 2010 that came out this morning from Freightways Ltd [FRE.NZ] is a clear indication that life is not only tough for the company but it also shows that the economy as a whole is still in the doldrums and shows little sign of positivity.

Revenue was down by 7% to NZ $164.9 million and net profit after tax down by 15% to just over $14.45 million.

A healthy dividend of 7c is to be paid compared with last years half of 8c, so little attention has been made to keeping cash within the business. Very important at this time in my not so humble opinion.

Financing costs for a sizable company debt have also been considerable but a capital raising from earlier last year has been used to pay down some bank debt so this cost was lessened for this period.

In comments about capital management, nothing was said about the sizable dividend being paid when profit was down. The company is borrowing heavily to fund this dividend and it should have been cut by more than it has. Other companies have done this during 2009 and will again in 2010 and for Freightway's management not to address this is poor considering economic constraints surrounding listed company spending.

The courier businesses have been hit the hardest, while the company's purchase of document management businesses over the last several years continues to pay off as these are achieving growth even when other parts of the the company have slowed.

Naturally management are cagey about company prospects for the coming year given economic uncertainty but I would have to say that business operations and therefore revenue will probably remain down over the rest of 2010 and into 2011. Profit levels will depend on cost savings until the New Zealand economy bounces back and real growth for the company can return.

Overall, the half year 2010 result has been a good indicator of a patchy 2009 and an indicator that there is more patchiness to come for Freightways. The same can also be said about the New Zealand economy as a whole.



Investors have reacted by marking down shares by 11c to $3.10 this morning at time of writing.

7.5 out of ten.


Disc I own FRE shares in the Share Investor Portfolio



Freightways @ Share Investor

Long Term View: Freightways Ltd
Freightways Ltd: 2010 Half Year profit commentary
Freightways Ltd: 2009 Full Year profit commentary
Freightway's Capital Raising more of the same crap for small shareholders
Long VS Short: Freightways Ltd
Freightway's keeps delivering
Why did you but that stock: Freightways Ltd
Freightway's delivers
Freightway's packages up a good result

Discuss FRE @ Share Investor Forum

Download FRE company Reports


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c Share Investor 2010

Freightway's Capital Raising more of the same crap for small shareholders

I have been moaning, bitching and hitting my head against a brick wall recently because of how totally unconscionable a number of NZX listed companies have been towards their shareholders when it comes to the flurry of capital raisings that have happened over the last few months.

Scant little care and only lip service has been given to small shareholders like you and me.

The three capital raisings that I have participated in so far : Sky City Entertainment [SKC.NZX] , Fletcher Building Ltd [FBU.NZX] and Freightways Ltd [FRE.NZX] have all favoured the larger shareholders or in fact recent interlopers who haven't been shareholders at all. They received concrete shareholdings at a definite price, without having to stump up "lost cash" that stays in someone else's bank account until credited back to the recipient with their meagre allotment of shares.

Small shareholders have had to stump up the maximum amount of cash to get a scaled down number of shares at a price they are unsure of until after the offer is closed.

The latest stinker has been the Freightway's share offer that wanted NZ$5,000,000.00 from small shareholders but was over subscribed by 1040%!

As Kelvin Hartnall points out institutions got a great deal:

The total amount provided by small investors was $57 million, which is more than the total capital raising combined. This shows that it was completely unnecessary to dilute the share-holdings by giving institutions such a great deal. Essentially the institutional investors have received a great bargain at the expense of small investors.

I sent in the maximum $12500 and will get less than 500 shares. I needed around 1200 to avoid dilution. Here, from Kelvin Hartnall again is an approximate breakdown of what Freightway's shareholders can expect to get some time next week:

Aggregate pool	$5,000,000
Number of share-holders	6,423
Pool available per share-holder	$778.45
Issue price	$2.44
Shares available per share-holder	319

This favouritism to the big boys is more of the same we small guys have expected and we have little protection from securities law, the NZX or any independent body. Bruce Sheppard from the Share Holders Association has been vocal as usual but has been met with the typical stoney silence or bullshit from company management along the lines of "well that is the best we can do in this economic environment".

Clearly that is wrong. Share offers for every good company that has made one so far have been wildly over-subscribed, so the moola is out there.

Other companies have at least made an attempt to even the financial playing field in their capital raisings by using rights issues to raise money. As rights issues are structured, a non -renouncable rights issue is one where shareholders are given the right to purchase new shares according to the number of shares they hold or they can forgo those rights if they wish. On the other hand a renouncable rights issue would allow shareholders to trade those rights to others should they not want to take up the rights offer.

In my opinion a renouncable share offer is the fairest way of raising capital because you get to buy in proportion to the shareholding you have and if new shareholders wish to participate in the capital raising they can buy the rights off you.

After that if there is a capital shortfall then and only then should institutions get a crack at stumping up some cash and the incentive to offer them a better deal, at the back end, would not only be appropriate but more than warranted.

Related Share Investor Reading

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• The NZX continues to lose ground with retail investors
• Sky City CEO doubles down
• More Moola Please!
• Are you experienced?
• Sky City share offer confusing and unfair for small shareholders

Discuss this topic @ Shareinvestor.net.nz

Relevant Links

Kelvin Hartnall's Blog
NZ Shareholders Association
NZX

Freightways @ Share Investor

Share Investor's Total Returns: Freightways Ltd
Share Price Alert: Freightways Ltd 3
Share Price Alert: Freightways Ltd 2
Freightways Ltd: 2011 Half Year Profit Commentary
Share Price Alert: Freightways Ltd
Freightways Ltd: 2010 Full Year Profit Analysis
Long Term View: Freightways Ltd
Freightways Ltd: 2010 Half Year profit commentary
Freightways Ltd: 2009 Full Year profit commentary
Freightway's Capital Raising more of the same crap for small shareholders
Long VS Short: Freightways Ltd
Freightway's keeps delivering
Why did you but that stock: Freightways Ltd
Freightway's delivers
Freightway's packages up a good result

Discuss FRE @ Share Investor Forum
Download FRE company Reports




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c Share Investor 2009

Why Did you buy that stock? [Freightways Ltd]

Transport is a sector of New Zealand business that has done well ever since this country's inception.

Two narrow, mountainous main islands divided by a small body of water, with a sparse population make New Zealand's economy even more reliant on road transport of goods than any other country in the world.

We will always need good competitive transport companies to keep the economy moving.


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Discuss Freightways at Share Investor Forum


I chose to invest in Freightways Ltd [FRE.NZ] principally because of this, although there are a raft of other key reasons as well. The fact that this industry is so essential to the economy means that it will always be around in some form or another. The certainty of that makes the criteria for investing a strong one for me.

The transport of goods around New Zealand is simple and easy to understand-for the operator and the investor. To operate such a business therefore is also simple and this has obvious advantages over the complexities of say the communications, computer and health sectors, which all require constant and costly updates to technology and the expense of training staff to keep up with that.

A truck, van, plane or boat pretty much stays the same, save for small changes over years.

What can I say, I am a simple kind of investor, and I like to understand the businesses that I invest in.

Unfortunately the simplicity of the transport industry, in this case Freightways, makes the barriers to entry for competition into its main operating areas: express package, business mail delivery, quite low.

It requires excellent management to keep competitors at bay and fortunately Freightways Managing Director Dean Bracewell and his board have provided a consistent approach to the day to day running of the company, in addition to a well researched approach to organic and acquistional growth.

The massive increases in business costs over the last several years; labour,energy, leasing and others, has been countered by cost savings in other areas while investment for future growth has been consistently rolled out where growth areas can be identified. All this and the company has still increased profit.

Tough economic times call for good management to get a company through the other side. The boys and girls at Freightways have proven their skills in this aspect.

As my readers will know, strong decisive management is important to the smooth, efficient running of a business and the team at Freightways have so far delivered for me.

Another good reason for me to buy this stock.

Freightways have a large stable of courier brands across New Zealand, from discount to the premium urgent delivery services, and the branding of these different services has been kept distinctly seperate. This keeps the brands uppermost in consumers minds and allows these respective services to target their consumers easily and keep them distinct from the myriad of competition from outside the company.

Branding is important to me and Freightway's strong courier brands, across a wide variety of income groups in the same industry make Freightway's courier business second to none.

I do like companies that specialize in one type of business, that way management are not easily distracted from their main core of operation and expertise-it is harder to get things wrong.

Freightways have expanded outside their core operations of delivery of packages and business mail but they are in related industries; document management and destruction companies based in New Zealand and Australia. A good compliment to their core operations but in tandem spreading the base of revenue across another business sector.

I paid $3.63 pr share in July 2006 and own the stock now for a cost of approx $3.10 after generous gross dividend payouts. The high dividend return is another reason I purchased this stock.

The last test in the latest Why did you buy that stock? series is whether I would still buy shares in Freightways today. Given the ability to get my hands on additional funds and a lower price than $3.10 per share the answer is a definite yes.

Disclosure I no longer own shares in FRE.

Freightways @ Share Investor

Long VS Short: Freightways Ltd
Freightway's keeps delivering
Why did you but that stock: Freightways Ltd
Freightway's delivers
Freightway's packages up a good result







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c Share Investor 2008