Auckland leads ports' rev-up

By Peter V O'Brien

Friday 4th July 2003

Port companies' share prices had minor movements since The National Business Review's discussion on February 7, excluding Ports of Auckland, which had an impressive 22% increase.

That company had a good result for the six months ended December, despite a reported 10% profit fall to $20.4 million from $22.74 million in the corresponding period of the previous year.

Ports of Auckland's interim report said a capital reduction in May last year resulted in the lower after-tax surplus but the return on shareholders' funds improved "in line with the more appropriately structured balance sheet."

The company now had a more effective use of capital.

Inland ports at East Tamaki and Otahuhu, with another at Wiri under development, were described in late June as having the road yard functions of a container terminal.

"Export containers are processed at the site and transported to the seaport. Import containers are cleared through Customs and Maf at the seaport and brought to the inland port for delivery to customers."

The system has obvious benefits for all concerned but two seem dominant. A better flow is achieved at the port and the movement of freight in off-peak hours, particularly at night, should reduce costs arising from greater Auckland's road congestion.

The Auckland port company will be watching the rail saga, including Tranz Rail's Tranz Link road transport operation.

It has probably observed Mainfreight's acquisition of 15% of Owens Group and what happens next between the two.

A Mainfreight/Owens alliance could have implications for Tranz Link, assuming the eventual controller of the rail group sold it. The two road transport, freight forwarding and "associated activities" groups plus all or parts of Tranz Link would be a significant transport force, with equally a significant impact in Auckland and thus on Ports of Auckland.

Lyttelton Port will also have a close watch on what happens to Tranz Rail. The company has a 15-year coal-handling agreement with Solid Energy, which ships coal from the West Coast to Lyttelton on Tranz Rail facilities.

It is significant business. Lyttleton Port's interim report said coal tonnage through the port increased 14% to 959,500 tonnes over the corresponding period of the previous year.

The association of the transport industry and port companies goes on, varying between transport modes for specific goods and a port's regional catchment.

Port of Tauranga has a big log trade, which has to be transported from forests to the port either by road or rail.

Port companies reorganised their capital structures in recent years, achieving sensible capital ratios. Shareholders benefited from share buyers and/or cancellations.

Northland Port Corporation was the anomaly this week. The company had a 96.6% ratio of shareholders' equity to total assets at September 30, 2002 (the next balance date being June 30).

The company has been grossly overcapitalised for some time, leading to an inefficient use of financial resources. Shareholders were told last year the board would address the issue after completing then financial commitments, including developments at Marsden Point.

Assuming something happens this year by the way of a buyback or share cancellation, astute investors could consider a stake, with on current trading and general share market information relatively low risk if there was a deferral of capital restructuring.

The sector comprises "defensive" stocks. Potential reorganisation of transport services should help its growth.

Port companies' share price performance Company Price Price Change 2002 2002 Equity/
27.6.03 31.1.03 Jan-Jun high low total assets
Lyttelton Port $1.72 $1.59 +8.2% $1.83 $1.52 51.6%
Northland Port $2.86 $2.87 -6.3% $3.20 $2.55 96.6%*
Ports of Auckland $4.99 $6.55 +22.0% $7.99 $6.15 63.6%
Port of Tauranga $4.30 $4.36 -1.4% $4.65 $3.80 50.8%
South Port $1.52 $1.58 -3.8% $1.64 $1.47 79.5%

*Six months to Sept, 2002; next balance, 15 months to June 30, 2003

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