Port of Tauranga: Poor Start to the Year as Economy Falters

After a dismal first quarter, management provided guidance for net profit after tax of NZD 95 to 107 million in fiscal 2024, down 14% on last year at the midpoint. We were previously expecting wide-moat Port of Tauranga POT to generate broadly flat earnings in fiscal 2024. We downgrade our fiscal 2024 NPAT forecast by 13% to NZD 103 million and pare back medium-term forecasts as well. We trim our fair value estimate by 4% to NZD 5 per share.

The port’s share price is down 35% from the 2020 peak and yet is now only just fairly valued in our opinion, a testament to how carried away the bulls got. At the current price, it trades on a forecast 2024 P/E ratio of 34 and offers a 2.6% dividend yield, fully imputed for New Zealand residents. While valuation metrics look aggressive, this seems about right to us considering the port’s good long-term prospects as it benefits from population and economic growth, while most competitors are held back by space constraints.

Total trade through the port fell 9% in the September quarter, compared with the previous corresponding period. Exports were hurt by an early end to kiwifruit season, a slow start to dairy exports, softer commodity prices and demand, and a sharp fall in transhipping. Containerized imports were also weak, down 23% on the PCP, as the domestic economy succumbs to cost-of-living pressures and because of increased rail costs improving the economics of shipping directly to Auckland. Ultimately though, weakness should prove temporary. We forecast a still-solid EPS compound annual growth rate of 4.5% during the next five years.