Sharechat Logo

Port of Tauranga outlook favourable but shares have baked in too much growth, rated 'sell'

Wednesday 13th June 2018

Text too small?

Port of Tauranga is a high-quality company lauded as the most productive and efficient port in Australasia but its shares are too expensive, according to Morningstar which recommends investors sell the stock.

The port company's shares recently traded at $5.13, a significant premium to Morningstar's $3.80 fair value estimate. The research house has a one-star rating on the stock, which indicates the market is pricing in an excessively optimistic outlook and encourages investors to strongly consider exiting the stock. Other analysts agree, with four having a 'sell' rating on the stock and one a 'strong sell', with a median price target of $3.80, according to Reuters data.

"Port of Tauranga is a high-quality company," Morningstar analyst Adrian Atkins said in a June 12 research note. "While the firm is in a favourable position with a virtuous outlook, the prevailing share price has baked in too much growth."

The port is the country's largest for cargo volume and second largest for container throughput, and Morningstar notes it runs at a cost advantage to other ports in the country due to its lower-cost non-union workforce and large-scale operations. It's set to benefit in the future as larger international ships call at fewer ports, expected to prompt a rationalisation in New Zealand to two hub ports servicing the North Island and the South Island and increased use of rail and coastal shipping. 

"The competitive advantages in New Zealand's largest port are undoubtedly compelling," Atkins said. "As port operations rationalise, and as the only port in New Zealand capable of accommodating larger cargo ships, we expect Port of Tauranga will continue to win share from competitors. Fortunately, it has ample land to accommodate expansion."

Still, despite the rosy outlook for the company, Morningstar notes Port of Tauranga is trading on a "mediocre" fiscal 2018 dividend yield of 3.5 percent including special dividends, and the research house forecasts a fiscal 2019 dividend yield of 3.7 percent, falling to 3 percent in fiscal 2020 as special dividends finish.

With the shares trading on a forward price to earnings ratio of more than 37 times "significant growth is already priced in" and "overly optimistic", Atkins said in his note titled 'Port of Tauranga is a High-Quality Company ...But Wait for a Better Price'.

(BusinessDesk)

  General Finance Advertising    

Comments from our readers

No comments yet

Add your comment:
Your name:
Your email:
Not displayed to the public
Comment:
Comments to Sharechat go through an approval process. Comments which are defamatory, abusive or in some way deemed inappropriate will not be approved. It is allowable to use some form of non-de-plume for your name, however we recommend real email addresses are used. Comments from free email addresses such as Gmail, Yahoo, Hotmail, etc may not be approved.

Related News:

Ryman Healthcare: service provider or property play?
Wrightson shareholder Agria settles US fraud, market manipulation claims
Cheaper petrol keeps lid on credit, debit card spending in November
Peter Yealands and his former company fined for "unprecedented offending"
Call for law society resignations after members veto sale
Finaccess bid for Restaurant Brands control gets thumbs up
December 12th Morning Report
NZ dollar climbs to 15-month high vs pound on Brexit vote delay
MARKET CLOSE: NZ shares fall to 5-week low as trade tensions spook investors; A2 drops
NZ dollar benefiting from weaker greenback as markets fret about global growth

IRG See IRG research reports