Freightways - FRE

[macduffy]

Just my views - others will have other opinions

Thanks, Liz.

Always helps to know the reasoning involved.

Cheers.

[Lizard]

Thanks, Liz.

Always helps to know the reasoning involved.

Cheers.

Hey, doesn't payback on forums mean taking the time to add your own opinion?

(That's not meant to be a competitive challenge of any kind - I'm just genuinely interested in having some other opinions to mull over in return for sticking my neck out.)

[Catalyst]

I generally agree with you Liz, except I have a fair value for FRE around the $2.55-$2.75 range.

Based on this week's FY10 result:

EBITDA = $63.7m
NPAT = $28.9m
Net debt = $150m
FY dividend = 14c
# shares = 153.6m

My valuation looks like this:

1. PE of 14.5x = 14.5 x $28.9m/153.6m = $2.73

2. EV/EBITDA of 8.5x = (8.5 x $63.7m - $150m)/153.6 = $2.55

3. Gross dividend yield of 7.5% = 14c / (7.5% * 70%) = $2.67

[Lizard]

Yes, looks reasonable Catalyst.

I think I was probably a bit harsher on it because I reckon the debt levels still make it vulnerable to a (somewhat distant for now) threat of dilution if things were to turn back down at all. (Also more exposed to rising interest costs should this occur). But these considerations probably don't need to carry too much weight in the current 6 month period anyway.

[jmsnz]

I don't see a huge choice between FRE and MFT on value. I think both are good, well-run companies that would be fine to hold for the long-term. However, I think there is better value around at present, but then that is probably my weakness - always wanting to buy too cheap.

I've compared some numbers on both and would see MFT at $6.50 as been somewhat more expensive than FRE at $2.81, based on EV/EBIT, and yield. Also, I'd consider FRE to have a higher theoretical growth rate (at constant capital), based on current returns and model. So if I was buying for a long term portfolio and had to choose between them, I'd probably choose FRE at current prices. However, I'd consider FRE higher risk from balance sheet perspective, so would be watching closely for anything that might impact cashflow and debt.

If I was really interested in either of them for a long term portfolio, I'd probably be looking a lot closer for any specific changes that they might be exposed to in currencies, costs and markets before making a call. To me, the price is not attractive enough to justify the extra work at this point.

Lizard,

Thank-you for both this response and the numbers you used to get to the evaluation, similar thanks to Catalyst as well.

I am a newby at this and have no accounting/financial background and on something of a voyage of discovery as to what my investment strategy should be about.

I prefer MFT from a busines strategy perspective in that they have a vision to be a global logistics operator which seems a tough ask, but even if they are only partially successful would offer more growth than FRE's multi-brand NZ strategy. Though accept your point about capital requirements for this.

Once again thanks for the enlightenment on valuation

[Lizard]

Hi jmsnz,

Good points there re MFT/FRE.

Re being a newbie, I would say markets are made up of all types of investors - sophisticated to naive, with all shades of strategies they use to invest. That is what makes a market and sets a price. In my view, that is the beauty of a forum in that it is just a representative sample of the market - so every opinion and view on a stock goes some way towards giving a picture of where the price might be heading. (I don't consider myself any kind of expert either, although I have a bad habit of writing as though I might be... I guess I just picked up the jargon from reading too many analyst reports over the years...)

[pierre]

Does anyone have any thoughts on the reason(s) for the recent rise and fall in the SP of Freightways? They've dropped around 20 cents in the past week - at a time when MFT have just announced a great result and their SP has headed north as a consequence.

[Phaedrus]

Pierre, before setting out on a fruitless quest to "explain" this drop, first look at its magnitude. FRE is currently down about 6% from its recent peaks. You can see from the chart that such a level of volatility is quite normal for this stock - within its current ongoing uptrend it has fallen as much as 10%, on occasion. So, is this a significant fall? No, it is not. Why bother trying to explain it?

FRE is in a clear uptrend, and has been for nearly a year, so far. All price action is within a nice tidy trend channel as marked below. Don't worry about relatively small retracements, they are only to be expected in any uptrend.

The blue arrow marks another occasion when FRE dropped 6% - how much of a concern do you reckon that should that have been?

[macduffy]

Just a guess but the market may be thinking that FRE might be having trouble competing against MFT, given the latter's good performance. After all, it's not as though the economy's booming with a strongly growing market for these companies.

[pierre]

Thanks Phaedrus - you make a very good point. Obviously, that's why you're labelled a Guru - and I'm still a junior member!

The current price drop just seemed to me to be a slightly odd reaction at the time that MFT is powering ahead. So, probably a good time to add to my FRE holding.