Rail hubs may not boost Napier Port log trade
By Gavin Evans
July 19 (BusinessDesk) - KiwiRail’s proposed freight hub at Dannevirke may extend Napier Port’s log catchment further south, but is more likely to put existing trucked freight onto rail, port chief executive Todd Dawson says.
Logs, wood pulp and timber accounted for 74 percent of the port’s export tonnage last year. The firm moved a record 2.2 million tonnes of logs in the September 2018 year and is picking that to climb 13 percent to about 2.5 million tonnes in the current year and in the 2020 financial year – reflecting the region’s projected harvest profile.
Dawson told journalists this week that the bulk of the port’s cargo travels less than 100 kilometres and trucking accounts for the vast bulk of those deliveries.
The port receives a daily log train – typically 18 wagons – from Whanganui. Whether rail can grab a bigger share of the North Island log trade will depend on KiwiRail’s ability to compete with truckers, he said.
KiwiRail – through its government owner – is investing heavily to improve regional freight services and take more bulk cargo off the roads.
Last month it said a proposed rail-hub south-west of Dannevirke may be able to take 200,000 tonnes off roads a year. Forests in the area are already sending more than 50,000 tonnes of logs to Napier Port annually by road and those volumes are forecast to increase.
Earlier this year, KiwiRail restored the Napier-Wairoa rail link and is now establishing a log hub in the northern centre.
Dawson said the firm already sources a lot of logs from Wairoa, about 120 kilometres by road north of Napier. While a hub may shift some of that volume onto rail, he doubted it would materially add to the firm’s log volume.
Napier Port is offering the public 90 million shares in the firm – 45 percent of the business – in order to raise extra capital to fund its expansion.
It has indicated a price range of $2.27 to $2.60 for the shares – a price to per-share earnings ratio of 22.7 to 26-times for the 2020 year.
That compares with a forward PE of 23-times for the NZX50 overall, and 39-times for both Port of Tauranga and South Port. Investors buying other major utilities like Auckland International Airport, Contact Energy and Meridian Energy are paying about 43-, 33- and 45-times forecast 2020 earnings respectively.
"The Napier price is reasonably fair. They'll have no trouble given the demand we've seen,” said Grant Davies, an investment advisor at Hamilton Hindin Greene.
"It's not as high a ratio as Port of Tauranga but it doesn't have the same growth opportunity. They're understandably not going to get priced that high."
Annual forestry planting in Hawke’s Bay peaked at close to 10,000 hectares in 1996 but was back to half that by 2000.
Napier Port’s offer document says pine is typically harvested at 25 to 30 years and that represents an opportunity for the company during the next five to 10 years.
But it also noted that the increased volumes seen in recent years will reduce in line with the expected harvest profile after about five years.
While logs dominate Napier's tonnage, its container trade generates 63 percent of its revenue. The port, already the country’s fourth-largest container terminal, is picking increases in container volumes of 1.2 percent for the current year and the September 2020 year. Pre-agreed tariff increases will help offset reduced ship visits – due to a change in shipping schedules – and an expected decline in volumes handled by the firm’s container packing facility.
Imported bulk goods are expected to decline this year and next, reflecting lower volumes of fertiliser and fuel.