The company that just keeps on delivering
Mainfreight has gone the distance for investors, writes Oliver Mander
Logistics has proven to be a resilient sector over the last few years, flying in the face of recessionary impacts, through the Christchurch and Kaikoura earthquakes, and now through Covid-19.
Mainfreight is one of a few logistics companies listed on the NZX, alongside Freightways and TIL Logistics. Mainfreight is far and away the largest of this group, however, with revenue approaching $3.1 billion ($750 million in New Zealand), compared to Freightways’ $620m and TIL’s $355m.
Each has pursued its path for growth. Freightways has concentrated heavily on courier operations (including NZ Couriers, Post Haste and Sub 60). TIL arguably competes more directly with Mainfreight in freight and warehousing, continuing its growth by acquisition since its listing in 2018.
Smaller companies have also evolved on the NZX, with QEX Logistics creating a niche in providing warehousing and supply chain solutions between NZ, Australia and China, while Scales Corporation has a division focused on the horticultural goods supply chain.
Mainfreight Profile
Mainfreight has quietly built its business into a multinational haulage and logistics group serving customers in the US, Europe, Asia and Australasia. New Zealand is still a big part — nearly a quarter — of its revenue.
Mainfreight has succeeded where many other high-profile New Zealand companies have failed — creating a successful global expansion well beyond this country’s borders.
Returns
My column would not be complete without a few numbers. To put Mainfreight’s success in context, the company’s share price has enjoyed a compound annual growth rate of nearly 21 per cent between June 2010 and today (excluding dividends).
So, a $10,000 investment back then (assuming re-invested dividends) would now be worth around $81,000. Incidentally, that calculation also shows the power of re-investing dividends: they add $15,000 to that return.
An investment into something tracking the NZX50 at the same time would have returned less than half of that: $10,000 would have become $37,500. To be fair, that represents a still-impressive 14 per cent compound annual return.
The graph shows Mainfreight’s continued strong performance, compared with the benchmark NZX50 index.
The other key feature highlighted in the chart is the massive Covid-19 downward spike this year. In spite of its size, though, this clearly shows the benefits of adopting a long-term horizon to investing. Even if markets had remained at their lowest ebb during the depths of the Covid crisis, returns would still have been relatively respectable over a 10-year horizon.
What’s bred Mainfreight’s success?
Culture: Mainfreight’s underpinning culture has gone a long way to supporting its growth. From an external perspective, it seems less “show pony” and more “workhorse”. Their communications focus heavily on their people, and many might remember their advertising slogans from the early 2000s, with their “special people, special company” tagline.
Mainfreight’s understated, “quiet” communication style and employeefocused culture resonate with New Zealand cultural values, and appear to have underpinned the company’s growth rather than acting as a handbrake.
Even the glorious simplicity of its financial statements supports this understated approach to its stakeholders. They’re a bit glossier in the annual report, but the consistency of presentation in their interim and final results announcements highlights the “if it ain’t broke, don’t fix it” approach. I’m convinced they’ve used the same set of spreadsheets since Excel was invented (all underpinned by effective financial systems and controls, of course).
The latest annual results presentation, issued in late May, continues the tradition. Words like “satisfactory” and “disappointed” on the first page of the presentation give no hint of just how strong Mainfreight’s latest result really was. And it’s no fluke — Mainfreight has been a consistently strong performer on the NZX for the best part of the last decade, helping to create some stability within a tough sector.
People capability: The move to international growth, however, has been deliberate and well executed. A stable and experienced team, with Bruce Plested (chair) and Don Braid (managing director) at the helm for longer than I can remember, has supported a long-term horizon to their international expansion.
A quick look at people profiles on the Mainfreight website shows most senior leaders have been associated with the company for decades.
From where I sit in Wellington, it seems almost unfashionable these days to follow the old adage that “growing your own” people creates long-term advantage. That’s unfortunate — most published studies tend to favour an approach of promoting from within as way to improve organisational performance, augmented by long-term hires of external recruits. There is some risk that an organisation becomes bound by its own experience, although that does not appear to have had any effect at Mainfreight.
Financial alignment: It helps that Plested and Braid between them own about 18 per cent of the company’s shares, creating a strong alignment with the interests of the other 82 per cent of shareholders.
That means a risk-balanced approach to growth has prevailed. Total debt has been maintained at roughly 45-55 per cent of total assets, while capex investment is wellbalanced between new growth and re-investment in established markets.
Coming up
Mainfreight’s outlook remains strong, regardless of Covid-19. Nonetheless, the company has instituted a series of measures in response to the virus, including a deferral of capital expenditure to preserve short-term cashflow — although they have continued to maintain a dividend for shareholders.
They’re the first to state that they’re not happy with the recent performance of their Asian business. Some of that is related to the ongoing tariff battles between the US and China. Nonetheless, at only 3 per cent of revenue, shareholders are likely to forgive them.
Most investors would also expect that issues within the Asian business will be resolved, just as performance issues have been addressed in the US, in Europe and Australia. Mainfreight has signalled that greater diversification of its Asian business will form a part of any future plan, as it looks to reduce reliance on China trade flows. Based on Mainfreight’s track record, investors have every reason to feel confident that improvement will occur.
The writer has held Mainfreight
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shares since 2013.