By Jenny Ruth
Wednesday 1st December 2010 |
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Mainfreight's third quarter earnings are rebounding significantly after a weaker-than-expected second quarter, says Kar Yue Yeo.
Earnings in the first seven weeks of the third quarter are 25% ahead of the same quarter a year earlier and Mainfreight expects to benefit from price increases from November 1, Kar Yue says.
Mainfreight's second-quarter net profit was $2.6 million, or 22%, below his estimate, reflecting weaker-than-expected margins in the New Zealand and Australian domestic businesses.
The company's business model is intact and operating leverage should improve in patches.
"We expect both Australia and New Zealand to deliver further growth with the USA and Asian markets offering the greatest potential upside (and risks) over time," he says.
"Mainfreight should be able to lift its margins materially in the US through the introduction of its own line-haul services as and when (the) Mainfreight USA operation reaches critical mass (doubling in revenue) in a few years."
Because of the strength shown in the third quarter, Kar Yue has left his forecasts largely unchanged.
He is forecasting Mainfreight's adjusted net earnings will rise from $38.3 million in the year ended March to $49.1 million in 2011 and to $59.3 million in 2012.
His 12-month rolled-forward valuation of the stock is $8.25.
Rating: Neutral.
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