By Jenny Ruth
Tuesday 22nd February 2011
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Courier company Freightways's grew first-half sales and second quarter sales were stronger than in the first quarter despite minimal economic improvement, providing management with cautious optimism about the immediate outlook, says broker McDouall Stuart.
"Any sales growth should improve profitability from operating leverage and tight control of costs by management," the broker says.
Freightways' first-half sales rose 7% to $176.2 million while net profit was up 9% at 15.8 million. First quarter sales were up 4% while second quarter sales rose 9%.
"While the improved sales performance in the second quarter of the current year is yet to be considered sustainable by management, the prospects of a slowly improving economy should see the share price advance towards valuation," the broker says.
McDouall Stuart values the shares at $3.62.
It says the company $157 million net debt is high but is sustained by sound cashflow, even under poor economic conditions and interest cover is strong. Freightway's financial structure should allow it to pursue further bolt-on acquisitions, it says.
While Freightways' major competitor, the joint venture between DHL and New Zealand Post, is looking at restoring its market position and profitability, competition is likely to be based on service rather than price, given the competitor's inadequate profitability, the broker says.
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