Port of Tauranga outlook favourable but shares have baked in too much growth, rated 'sell'
By Tina Morrison
June 13 (BusinessDesk) - Port of Tauranga is a high-quality company lauded as the most productive and efficient port in
Australasia but its shares are too expensive, according to Morningstar which recommends investors sell the stock.
The port company's shares recently traded at $5.13, a significant premium to Morningstar's $3.80 fair value estimate.
The research house has a one-star rating on the stock, which indicates the market is pricing in an excessively
optimistic outlook and encourages investors to strongly consider exiting the stock. Other analysts agree, with four
having a 'sell' rating on the stock and one a 'strong sell', with a median price target of $3.80, according to Reuters
"Port of Tauranga is a high-quality company," Morningstar analyst Adrian Atkins said in a June 12 research note. "While
the firm is in a favourable position with a virtuous outlook, the prevailing share price has baked in too much growth."
The port is the country's largest for cargo volume and second largest for container throughput, and Morningstar notes it
runs at a cost advantage to other ports in the country due to its lower-cost non-union workforce and large-scale
operations. It's set to benefit in the future as larger international ships call at fewer ports, expected to prompt a
rationalisation in New Zealand to two hub ports servicing the North Island and the South Island and increased use of
rail and coastal shipping.
"The competitive advantages in New Zealand's largest port are undoubtedly compelling," Atkins said. "As port operations
rationalise, and as the only port in New Zealand capable of accommodating larger cargo ships, we expect Port of Tauranga
will continue to win share from competitors. Fortunately, it has ample land to accommodate expansion."
Still, despite the rosy outlook for the company, Morningstar notes Port of Tauranga is trading on a "mediocre" fiscal
2018 dividend yield of 3.5 percent including special dividends, and the research house forecasts a fiscal 2019 dividend
yield of 3.7 percent, falling to 3 percent in fiscal 2020 as special dividends finish.
With the shares trading on a forward price to earnings ratio of more than 37 times "significant growth is already priced
in" and "overly optimistic", Atkins said in his note titled 'Port of Tauranga is a High-Quality Company ...But Wait for
a Better Price'.