Mainfreight Ltd: Full Year 2010 Profit Analysis

Mainfreight Ltd [MFT.NZ] has had a very good 2010 full year profit result considering the state of the world economy and the subsequent slow down in world trade. The result is up 2.5% on the 2009 full year announcement.



Key Points

1. Total revenue (sales) decreased by 10.5% to $1.13 billion, from $1.26 billion last year

2. A net surplus after taxation and abnormals of $36.37 million for the twelve months of the 2010 financial year; an increase of 2.5% on the previous year’s result of $35.48 million.

3. Second half of year up more than 11% in revenue indicating a possible return to growth.

4. A big focus on cutting operating costs over the period of downturn in the business/economy, with more than $32 million cut.

5. A huge decline in North American revenues of nearly 25% in the first half but importantly showing signs of a recovery in the second half.

6. Australian operations steady.

7. New Zealand operations down in first half but improving in second.

8. Asian business under intense competitive pressure.

9. Cashflow down.

10. Debt decreased significantly from $115.28 million to $80 million.

Management have done well to come in with a higher full year profit. They did this by cutting back fat in the business and delaying capital expenditure and that is a testament to how responsive management are to trading conditions for them and the economic situation. Other listed NZX companies have continued to operate without these sort of economy measures and shareholders are paying the price.

Mainfreight have indicated to the market that while business for them is improving, any improvement could be tentative at best given the continuation of global economic problems and problems in Europe and elsewhere with high state debt levels.

I have to concur with these sentiments and I see any - if there is to be growth - short to medium term growth for Mainfreight that it comes for reasons of market share protection and that will impact on margins and therefore profit.

Hopefully that means there will be more expenditure cuts until the economic slowdown is a real one (the current "rebound" could be fueled by more State funded debt through stimulus packages) and sustainable growth and increased margins will once again be the order of the day for Mainfreight.

9 out of 10.


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c Share Investor 2010

Telecom maybe oversold

Every market watcher is talking about it, just how low is the Telecom NZ [TEL.NZ] share price going to go.

Well at time of market close today the TEL share price is down 11c to a new all time low of $1.85 (see 2 month chart above) on lowish volume.

I don't want to discuss this today though.

I think the market has oversold the stock at this point and seems to be discounting the value that could be added to shareholders if the company decides to split up its various divisions so it can bid for 1.5 billion in taxpayer dosh to build a new fibre network for faster broadband in New Zealand.

The decision to split the company is by no means a definite one but beleaguered CEO Paul Reynolds indicated yesterday that this could be on the cards and the company is investigating the possibility of breaking Telecom into two parts - Chorus and Telecoms other divisions.

Depending on how a possible separation is executed, this could be a good move for existing shareholders as a split could realise them full value of the companies two parts by opening the Chorus lines/infrastructure business to the posibility of nabbing a slice of that taxpayer moola.

While there might be one-off and ongoing costs for the two separate businesses I think investors at these price levels will benefit from a separation, at least in the short term.


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c Share Investor 2010

Sky City Convention Centre Expansion a Money Loser: Part Two

With news out over the weekend that Sky City Entertainment Group Ltd [SKC.NZ] intends to extend its expansion of its present centre to include a bid for a much larger and far more expensive stand alone "National Convention Centre", should leave SKC shareholders in fear of future profits and indeed the viability of the company in the medium to long-term.

I have fears about the $40 million expansion of the present convention centre and the dubious reasons for spending money on something with little or negative returns.

A new National Convention Centre, if built by Sky City, would be located as a standalone development on Hobson Street by the TVNZ centre.

Estimates of a price tag range from NZ$300-$550 million would clearly need SKC to either draw down on their $1 billion credit-line or go to the market for additional funds from shareholders and/or institutions and would be the biggest single capital expenditure for the company since its flagship Auckland Casino was developed in the mid nineties.

If Sky City borrowed say $400 million at their current rates of financing at around 7.5% per annum the convention centre would have to return a net profit from it of $30 million per annum just to cover financing costs. It simply doesn't stack up if you look at the figures.

In the absense of evidence of any good return on capital expense and ongoing running costs being a massive being a permanent drain, a convention centre built by Sky City just looks like monument building and justification of this sort of cost to shareholders should be put to the vote before anything goes ahead.

Let the local politicians build such a convention centre, if it is needed at all, at least then the ongoing losses would be spread around ratepayers rather than just long suffering SKC shareholders like my good self.




Disclosure I own SKC shares in the Share Investor Portfolio


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c Share Investor 2010

2010 Budget a Good Start

Thurday's 2010 New Zealand Budget was probably one of the best I have seen in my 44 years but it lacked the will to live within a budget.

Lets gripe first.

There were no cut-backs in Government spending, in fact spending was increased by $1.8 billion, so borrowing is the name of the game for sometime yet.

Little incentive for investors to save.

Welfare needed to be cut and the Emissions Trading Scam tax dumped along with some superfluous Government departments like Wimins affairs and the Ministry for "climate change" but I guess there is time for that at a latter stage.

The tax cuts, while good, were not sharp enough or bold enough to change the direction of the economy quick enough.

What I like.

The tax cuts gave a good incentive for all to work harder and were especially generous to low income earners with good cuts in the lower income brackets. A flat overall tax of 20% would have given the economy a good kick-start , with a tax free threshold of $10,000 for all earners.

The cut in company tax from 30 to 28%, while not bold enough (a cut to 25% reducing to 20% in 2011 would have been wiser) will be good for private and listed companies and will be a small incentive to those buying listed stocks.

A good budget tax wise but not enough restraint.

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c Share Investor 2010