Monday, August 18, 2008

Freightways keeps delivering during recession

Given the bleak economic conditions over the last year, one could forgive Dean Bracewell, Managing Director, and his team for underachieving in their management of Freightways Ltd [FRE.NZ] , the New Zealand courier and document management company, but they have managed the business to a good profit result to 30 June 2008 out today.

A 5% increase in Full Year profit to just over NZ$32 million, on gross revenue of $324 million, up 14%, shows that operating costs have had an impact on the bottom line.

As canvassed before on Share Investor, Freightway's movement to diversify income streams in terms of new business areas, other than their courier businesses, has paid off-in New Zealand and Australia.

Freightways entry into document management has proven a good move for the company:
"The information management business currently contributes approximately 15% of Freightways' revenue and earnings. The performance of this business has been outstanding".
From operating result , 18 Aug 2008.

This sector is a more prominent area of business in North America and Europe. Freightway's experience in their well managed document storage and destruction business in New Zealand and Australia will provide a good base for them to grow revenue and profit in the future.

According to some business analysts, a transport related business like Freightways can be looked at as a wider barometer of how the economy is going as a whole. I would argue though that careful cost management and forward planning has helped the company avoid the pitfalls of an economy in a steep decline and that isn't as easy to do as it sounds when faced with macro economic pressures that one cannot control.

Petrol, surprise government road user charges and labour increases will continue to crimp the bottom line profit in the coming 2009 year.

The company characteristically have a subdued outlook for the following year and it is a sign of good management that they do this. Many a company, especially in hard economic times don't give a true picture of their businesses as they look forward, only to disappoint come reporting time.

Over the last several months, the share price has been affected badly. From a high of nearly 5 bucks in 2007, and a low just recently of just under NZ$2.90, nervous markets have struggled to determine a realistic price for this company-so what else is new.

At a net return of just over 6% on today's share price, it is a healthy return for a well run company with good future prospects and falling interest rates for other investments. Freightways is worth a look when considering a long term investment.

Excellent management, an easy to understand business and a good dividend delivers the goods for me.

Disclosure I own FRE shares

Freightways @ Share Investor

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