Wednesday, August 6, 2008

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

The Warren Buffett Way

The Warren Buffett Way by Robert G. Hagstrom
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c Share Investor 2008

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