Transport and logistics company Mainfreight has notched up record profits during the Covid-19 pandemic as disruption to global trade helped it gain more customers while soaring international freight rates boosted revenue.
Investors and analysts expect that to translate into a big improvement in profit this year. Forysth Barr is betting profit in the year to the end of March will jump 78 per cent while Craigs Investment Partners has pencilled in an 84 per cent jump.
“This current financial year will be very impressive indeed,” says Nikko Asset Management portfolio manager Michael De Cesare.
Mainfreight’s air and ocean international freight division has been the main driver of profit, as the company’s reputation for reliability and high-quality service saw it attract more business during a period of uncertainty and higher freight rates boosted revenues.
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In the first 10 months of the financial year, the air and ocean division lifted revenue 80 per cent, and pre-tax profit surged 208 per cent, the company announced earlier this month.
Still, the high international freight rates are not considered sustainable and have probably peaked which will see growth start to moderate in the future, although it could take years for them to return to more normal pre-Covid levels, analysts say.
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Growth is expected to continue apace in Mainfreight’s transport and warehousing businesses. In the first 10 months of the year, transport revenue lifted 19 per cent with pre-tax profit up 31 percent, while warehousing revenue rose 26 per cent with pre-tax profit up 36 per cent.
Mainfreight has grown its business by focusing on high-quality service and analysts say that has helped it gain customers through the pandemic.
De Cesare says Mainfreight has a “fantastic reputation” and is often listed by large global brands as one of the top 10 approved companies to work with.
“When things have got tight, people have been looking to the guys who deliver and who fulfil high standards and as a result, they have been winning a lot of market share,” De Cesare says. “I’m pretty sure those wins will be very sticky. They’ve got a really impressive history of retaining customers.”
Demand for warehouse space increased during the pandemic as companies looked to hold more inventory in case they struggled to source it at a later date, and Mainfreight’s ability to cross-sell its services also creates more entrenched relationships with its customers, he says.
To lessen volatility in its business, Mainfreight has increasingly focused on “everyday freight” such as food and beverages that need to be delivered regardless of the economic cycle, ensuring consistency in its network.
Its expansion beyond New Zealand to Australia, Europe, the United States, and Asia, has helped smooth out the impact of the pandemic as the virus peaked at different times around the world. It’s likely to continue to increase its density in those markets in the future, analysts say.
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Nikko Asset Management portfolio manager Michael De Cesare says Mainfreight is a “genuine New Zealand success story” that is doing very well around the world.
While Mainfreight has succeeded in delivering its best ever profits during the pandemic, that was not a given in the early days of the Covid-19 outbreak when sales dropped.
Some investors bailed out of the stock, pushing the shares down to a low of $24 in March 2020 from around $42 at the start of the year.
Nikko has held an overweight position in the stock for many years and in those early days of Covid uncertainty when the shares crashed, the fund manager took the opportunity to buy more stock.
As Mainfreight recovered and thrived, the shares came tantalisingly close to $100 a piece, hitting a high of $99.78 in September 2021. That’s a far cry from their 96 cent listing price in June 1996.
The shares have slipped 11 per cent so far this year, but Mainfreight remains the most expensive stock on the NZX. It last traded at $84.01, valuing the company at $8.5 billion and its shares have soared 175 per cent over the past three years.
Chris Hutching/Stuff
Mainfreight managing director Don Braid, left, with founder and chairman Bruce Plested, right, are credited with developing a special culture at the company which has contributed to its success.
Analysts say the company’s special culture is key to its success, based around continuous improvement, strong leadership, family values, a meritocracy that promotes from within, and a long-term view.
“People feel proud to work for the company and deliver superior service and as a result, they get the outcomes they do,” De Cesare says. “They have been able to create a great environment for people to deliver such great results.”
Last year, Mainfreight rewarded its staff with higher bonuses after posting a record profit of $188.1 million in a difficult year disrupted by the pandemic.
Managing director Don Braid, who joined Mainfreight in 1994 and has won multiple awards for his leadership, said he was “bloody proud” of the people in the company who delivered the record result and achieved higher profitability in all regions during “a tumultuous time”.
The company increased the amount of money it paid its staff in discretionary profit bonuses by 61 per cent to $43.9m, and more than doubled the team Christmas bonus to $11m from $5.4m.
Forsyth Barr head of research Andy Bowley, who penned a special report on Mainfreight in June 2020, describes it as a principle-based business with a stronger cultural identity than almost any other large company in New Zealand.
All new employees are immersed into the culture, which has helped drive consistency across the business internationally and contributed to its success, Bowley says.
Mainfreight founder Bruce Plested, who started the firm in 1978, remains involved as board chairman, and the average tenure of Mainfreight’s global leadership team is 20 years, Bowley notes.
“It’s incredible,” De Cesare says. “It’s fantastic to see these genuine New Zealand success stories that leave our shores and go and do very well around the world.”
