Hidden dangers lurk on Freightways path

Friday 5th March 2004

Investors who bought into the Freightways float last September should be fairly well pleased. It was one of a few sharemarket listings to deliver some reward.

The significant threat now, however, is the possibility of new competition hitting on Freightways' attractive margins.

A week before Freightways posted a record $8.5 million first-half profit, low-cost airline Origin Pacific announced a new same-day, airport terminal to airport terminal package service.

While most analysts see it as little threat to Freightways or New Zealand Post in the short term, the new entrant clearly demonstrates the ability of competitors to break into the market.

Origin's move is of some concern as airline-haul is one of Freightways' major competitive advantages. The threat is greater if the Nelson-based airline can partner up to deliver overnight.

Toll Holdings, which operates courier businesses in Australia, is seen as one possibility as are smaller players Fastway and Peter Baker Transport.

Another threat is if a new competitor can take market share either through a greenfield strategy or through linking existing logistics infrastructure and relationships.

Freightways has a market share in express parcels from which it derives 90% of its revenue of about 39.5%, compared with New Zealand Post's 43%.

After listing at $1.60 a 15c premium Freightways shares hit a high of $2.49 before drifting back to about $2.20.

First New Zealand Capital has upgraded its forecast for Freightways' June full-year net profit 8% to $15.8 million and its 2005-year forecast by 4.6% to $18.1 million.

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