The freight company set to expand internationally (NZE: MFT)

KEY TAKEAWAYS:

• Mainfreight (NZE: MFT) is a New Zealand logistics and transport company.
• The majority of freight moved is in stable industries
• The company has over 50% market share in New Zealand.
• Market share in Australia, Europe, Asia and America is much lower allowing strong potential for growth.
• They have a proven management team that has shown consistent responsible leadership and expansion.

Mainfreight (NZE: MFT) is a logistics and transport company headquartered and operating in New Zealand but with operation also in Australia, Europe, Asia and America. The company prides itself on service and quality, differentiators that are universally appreciated and valued.

Significant to note is the strength of their management team who have proven themselves to be responsible, consistent and personally invested in the success of the company. The company was founded by Bruce Plested (who remains on the board) in 1978. The CEO, Don Braid has been with the company for 22 years. Both are large shareholders and have demonstrated consistent growth over the long term, with a strong focus on service culture.

The company sits within a competitive industry which includes businesses like Toll Group and Linfox, however, Mainfreight have been able to establish a market share of over 50% in New Zealand and we believe if they employ the same skills and management to their operations internationally they have the potential for strong growth in much larger markets. We estimate market share in Australia at around 5%, and much lower in the US.

Over the past ten years, the company has shown compound average EPS growth of 11%. The business requires moderate capital to grow (warehouses and branches), and the company has shown a return on capital employed of 19%.

We have chosen to invest in this company for the following reasons:

1. Strong, consistent, aligned management team.
2. Consistent track record of earnings of growth.
3. The opportunity to boost market share internationally well into the medium term.
4. The company has medium capital intensity, allowing them to grow without investing too heavily.

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About Ed Prendergast

Ed is the co-manager of the Pengana Emerging Companies Fund and established the Fund in 2004 with Steve Black.

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