Daily ShareChat: Freightways

A positive aspect of Freightways's annual result was organic volume growth returned to its courier operations in the six months ended June but its economy brands continue to struggle against subdued demand from retailers, says Marcus Curley, an analyst at Goldman Sachs JB Were.

"Despite lower volumes during (the 12 months ended June) 2010, margin pressure was limited to 20 basis points through cost savings in overheads and fleet," Curley says.

Evidence of the company's pricing power returning is the 3.2% price increase its New Zealand Couriers brand pushed through successfully in July and its Post Haste and Castle Parcel brands should follow suit in November, he says.

A recovery in international prices for recycled paper drove the information management division's profit margins up in the second half and should help counter higher rental costs from new facilities in Sydney, Auckland and Perth during 2011, Curley says.

Curley says Freightways shares are trading at a big discount to his $3.95 discounted cash flow valuation and the shares also deliver an attractive cash yield of 6% (with the shares at $2.75). "However, it may take some time before cautious investors, previously beaten down by regular earnings downgrades, buy into Freightways' earnings recovery story."

Recommendation: Buy.

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