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By Jenny Ruth

Friday 9th June 2006

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 Jenny Ruth
Freightways' origins date from 1964 when its leading brand, New Zealand Couriers, was launched. Today it provides business courier services, mail delivery, information management, archiving and document destruction services and its other brands include Post Haste, Castle Parcels, Security Express and DX Mail. It also runs the air service Fieldair Holdings, which provides engineering services to the aviation market. Its major competitor is the NZ Post/DHL joint venture Express Couriers. The company's strength has meant it survived successive milkings by previous major shareholders, who loaded it up with debt. It finally became a standalone company when it listed in September 2003 after a share float, priced at $1.60 a share, valuing the company at $195.3 million.

The numbers: Since listing, the company's under-lying performance has further strengthened with its current five-year compound average annual growth in EBITA (earnings before interest, tax and amortisation) currently at 18%, compared to 16.6% when it listed. Earnings growth is stronger than sales growth, which has averaged 8% a year for the last five years. In late April, with the shares trading at $3.70, it had a $474.6 million market capitalisation. The company also easily beat its prospectus forecasts, reporting a $15.4 million net profit for the year ended June 2004, compared with the $12.7 million forecast, and a $22 million result the following year.

Management: Many of Freightways' executives are long serving and highly rated. Managing director Dean Bracewell has held his position since 1999 and has spent his entire career with the company since 1979, apart from a five-year break. Chief financial officer Mark Royle has held that position since 2001, and Steve Wells, who manages New Zealand Couriers and Parcel Express, first joined the company in 1984. Bracewell's predecessor, Warwick Lewis, still sits on the board.

Current strategy: With the economy slowing, the company has commented that it isn't expecting much growth from its existing customers and that "the business environment will remain challenging". One of its initiatives to maintain growth was the Kiwi Express acquisition last October. The company says this Auckland and Wellington courier operation complements its Sub60 business. While the two brands are being maintained, both have delivered improved performance by cross-utilising a combined fleet. The company says fleet size is the main reason the brands can achieve one-hour deliveries in increasingly congested -cities. The company also plans to increase market share, something it has demonstrated in the past, and expand its mail and information services. Nevertheless - and despite a practically unblemished record - there is some nervousness in the market about the company's ability to conti-nue to grow and there are questions over the business's relative maturity. Freightways says all its businesses have potential to grow and that it will pursue growth "aggressively yet pragmatically". The company has been spending more to increase capacity and improve customer service, budget-ing $7.8 million for the year ending June this year. It's also instal-led scanners in New Zealand Couriers vans - to transmit data and track deliveries - to neutralise the perceived advantage of DHL's scanner and parcel-tracking system. The company expects annual capital spending will fall by $1 million-$1.5 million in fiscal 2007 and 2008.

Recent track record: Freightways' latest first-half net profit was up 20% to $13.5 million. Net cashflow from operating activities was even stronger at $17.5 million, although down from $19.2 million in the previous first half. Of its 11% sales increase, the company says 1% was organic growth from existing customers increasing package deli-veries. That's down from about 5% in the previous first half. As for the rest of the growth, 5% came from new business, 4% from price increases and 1% from just under three months, trading from the Kiwi Express acquisition. The company says all its businesses delivered improved performances.

Analysts' recommendations: Dennis Lee at ABN Amro previously had a buy recommendation on Freightways but was reviewing that in late April due to strong share price growth. Macquarie Equities' Warren Doak recommends investors buy while Greg Main at Forsyth Barr suggests while they "accumulate" the shares, any share price weakness will be a long-term buying opportunity. Andrew Mortimer at First NZ Capital rates the stock "outperform".

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