MFT - Mainfreight. Global Freight & Logistics

[gravy train]

From my somewhat basic fundamental analysis of this company, MFT look like good value based on their long term prospects and strong history. I recnetly bought my first MFT shares and plan to buy more.

I notice that of late the share price has been dropping and would very much appreciate a view from the more experienced as to whether there is anything behind this.

My thoughts are:

1) An increase in exchange rate again resulting in a decrease.
2) Soem news that is about to surface (or that I have missed) - I read into an announcement today that their CFO Tim Williams is selling shares (245k down to 200k units). I'm new to this so maybe I'm interpreting this incorrectly.

any replies much aprpeciated.

Cheers
GT

Over the last week the share price has been dropping so I have bought my first shares in MFT. They are have dropped further and . Coud

[scamper]

the chart for mft is all gloom at the moment. as a TA person i would recomment staying well away. it has just broken its 3-year up trend.

there is hot debate at times on this forum about analysis of fundamentals vs technicals (charts of share price behaviour). both have their times in the sun.

but if, as you suspect, the fundamentals are good, FA lets you into this share too soon.
as i already mentioned, TA would have you standing well away from this. cheers.

[Hoop]

Welcome Gravy Train to the forum.

Scamper has said it TA wise ...this is not a good time to buy MFT at the moment, even though it had a upward flutter today.

Fundamental Analysis using PE Ratios .... a quick glance MFT looks good e.g PE Ratio 11.6 (11 is considered reasonably low compared to the market average and comparing MFT with FRE which as a PE 19 and both in the same business one would consider MFT as good buying....however looks are deceiving.

Each company has its own natural PE range (the Norm) and that PE Norm only changes if the company changes structurally/management wise...or for some other reason it gets re rated by the investment market.

MFT has had a good stable PE for many years. In 2005-06 and 2006-07 there was an abnormal growth surge, espec 2005-06 where the growth nearly doubled. With companies that have large growth rates i.e 100% a PE value of 50 is seen as not unreasonable, Rakon (RAK) is a good example of that.

Now MFT at the present day.. it's growth has slowed back to nearly its "norm" so we now expect its PE values to come down back it their "norms" as well
To get what is the PE norm for MFT we go to its history

Year ending 31 March 1996 PE 9.5
1997 9.6
1998 7.9 (depressed shareprice due to Asian crisis.. time to buy!!!!)
1999 9.0
2000 9.1
2001 11.6
2002 11.9
2003 9.8
2004 29.0 (shareprice increases in anticipation of large future growth..Buy!)
2005 18.0
2006 15.3
2007 12.6
Now 11.6
So I suggest the PE norm is around 9.5 to 11.5 range

Therefore target price range as at 31-9-2007
Target price (TP) = PE x eps
Growth rate running at 6% at present
Therefore 57.65cps (31-3-07) x 6% = 61.1

TP Range = 9.5 x 61.1 = 580cents
=11.5 x 61.1 = 702cents

Latest share price 5.00pm 679cents up 12c

As there is still modest growth with MFT a PE of 9.5 seems rather low (harsh) at todays perpective..however one has to be reminded that we have had some moderate corrections rippling through the market recently and this bull market is mature and chances are that it may falter with a major correction or two.
As seen above in 1998 with the Asian crisis ..that severe correction bought MFT PE back to 7.9. So from that perpective 9.5 sounds generous.

So to be conservative I used a TP range using a PE norm range of 9.5 -11.5 for my decisions.

Therefore from a FA point of view MFT shareprice is neutral with a possible downward price bias

As there still is growth MFT's target price (TP) is increasing. If the shareprice lags behind the TP....use TA charts to time the entry to buy in.



** eps figures used differed slightly in various reference texts. The resulting PE ratios may be a couple of decimal points different depending on which reference one uses.



Disc:

Bought MFT July 2006 @ 593c
Sold 27 Aug 2007 @ 705c

The company is too good not to be on my watch list.

[scamper]

Thanks Hoop -- never really worked my way through an FA indicator with such clear points.
and, you ended up with my rule: use TA to time buys and sells, FA to pick the stock.
now, all i need to do, is follow my own rule...
Hi Gravy Train -- use the search button for posts by Phaedrus -- he outlines TA triggers with similar clarity. good luck!

[Viking]

Thank you Hoop, this is quite enlightening for me

[Rif-Raf]

Great analysis Hoop.

One thing you haven't mentioned is the change in the market conditions. while 11.6 looks high compared to their long run average of around 9.5, wouldn't it also be correct to suggest that the long run pe of the market is higher now than over the period you are looking at?
If the market pe is higher now by say 2-3 then perhaps the stock is undervalued.

Of course you could say the current market is overvalued or alternativey the historic market prices were undervalued, however what is a fair p/e for a market may also be heavily influenced such things as interest rates etc.

[Hoop]

Great analysis Hoop.

One thing you haven't mentioned is the change in the market conditions. while 11.6 looks high compared to their long run average of around 9.5, wouldn't it also be correct to suggest that the long run pe of the market is higher now than over the period you are looking at?
If the market pe is higher now by say 2-3 then perhaps the stock is undervalued.

Of course you could say the current market is overvalued or alternativey the historic market prices were undervalued, however what is a fair p/e for a market may also be heavily influenced such things as interest rates etc.

Thanks Guys. Rif Raf yes a higher market PE may influence the PE of a company, I know a lower market PE does affect a company PE ,the Asian crises was proof to that.
I would say that there are many mathematical equations floating around accessing the short term company values in relation with it's market, however when it gets too complicated I give up that is why I tend to be a long term investor by nature, its easier.

I have noticed that an overall PE for a market has its "norms" as well.... may work on one for the NZX one rainy day.
I think I read somewhere that the Hang Seng has an average PE of over 26, this may seem high in relation to NZX but they have high growth so is that market overpriced? maybe not.

[Rif-Raf]

I think you'll find that the average pe for NZ companies was extremely low through the 90's compared to overseas bourses. This is because the NZX was hit so hard in the '87 crash that it took many years to properly recover lost market confidence. In short the NZ market went from one xtreme to the other. Only in the last 3-4 years have we actually properly caught up and in some cases overtaken others in terms of valuing companies without applying a discount (because it is an NZX company).

I guess what I'm saying is that if MFT was trading at a PE of around 10 in the late 90's when perhaps the market pe was averaging say 12, then as the market pe is now possibly around 15, then all other things equal MFT should be at say 13.
I'm just guessing these numbers to illustrate the point. At a pe of 11.6 I wouldn't be losing too much sleep if I owned this stock.

[Snow Leopard]

You all seem to be basing the current PE for good old Mainfreight on last years total profit of $55m6. However that included a significant abnormal (one-off) gains of $19m2 mainly from the sale of the Hirepool stake.
Mainfreight themselves were very keen to make this clear in their results announcment.
So a better EPS to work with would be the 41.1 from continuing operations which at todays close equates to a PE of 16.4. [Note this is based on NPAT under GAAP]

Further more in the first quarter of this year we have a nice little abnormal of $61m2 from the sale of LEP and Pan Orient.

So the headline end of year profit for the 2008 year should be north of $100m0, but the profit from the every day business of logistics and stuff is very likely to be less than of this headline figure and the forward PE is possibly 15.

This in my book means MFT is currently fairly priced.

best wishes
Paper Tiger

[gravy train]

Thanks to all for the views & pointers.

While I'd read the annual report enough to share Paper Tigers view of a current PE of 16.4, I wasn't aware of the Pan Orient Abnormal (thanks PT), I hadn't considered the natural PE range (thanks Hoop), or the market PE (thanks Rif-Raf), or in fact using (proper) TA to time my buy (thanks scamper).

All good things to be aware of I'm sure, as I find an investment approach that works for / suits me.

Again, as I'm looking to learn by doing - with training wheels on (exit strategies), and greatly appreciate the input from the experienced.

I guess time will tell for MFT.

Cheers
GT