INSIGHTS

Recent trade disruptions notwithstanding, Port of Tauranga is one of the highest quality companies on the local market. The Port has an exceptionally strong track record of growing earnings and dividends, and has consistently found innovative new ways of developing its strategy to stay ahead of its rivals.

A brief timeline

Construction of the Port’s infrastructure got underway in 1953 when the government of the time built and financed the first 373 metres of wharf. In 1965, the full 1,303 metres of Mount Maunganui wharf was officially handed over to the Tauranga Harbour Board.

By this time the Hamilton/Tauranga rail line had become the busiest provincial line in the North Island, carrying a freight traffic density second only to the main trunk line. The Kaimai Tunnel was constructed to service this increasing traffic.

To keep pace with progress and demand, an almost continuous berth building programme ensued, accompanied by channel and harbour deepening, reclamation works, construction of port facilities, and the acquisition of tugboats and onshore equipment (cranes etc.).

No longer a regional port, Port of Tauranga is now New Zealand’s largest export port and largest container port. In fact, the Port handles around 40% more containers than the next largest port in New Zealand.

One of the Port’s most significant projects in recent history, was its harbour dredging programme, completed in late 2016. This has cemented its place as New Zealand’s premier port and allowed it to undertake its hub port strategy.

In 2019, the Port handled around 1,700 ship visits, moved more than 1.2 million containers (twenty foot equivalent units), and employed 230 staff. Outside of its own operations in Tauranga, the Port has also expanded to have ownership stakes in Northport (near Whangarei), and Prime Port in Timaru as well as operations at MetroPort in Auckland. Recently the Port has added further to this network with the announcement of an inland port at Ruakura.

Ports are all about networks

The Port of Tauranga network spans the North and South Islands. Given the nature of New Zealand’s geography and size, in many cases, it is inherently difficult to transport cargo via land over long distances.

Port of Tauranga’s network is a critical link in providing efficient connectivity demanded by importers and exporters. This is becoming more and more crucial as customers move towards ‘just in time’ inventory systems, meaning efficient supply chains are becoming prized possessions as businesses look to be more efficient with their cash flow.

Port of Tauranga’s network has enabled it to position itself as New Zealand’s key consolidation port. This is the hub port strategy.

With shipping line operators wanting to minimise their costs, particularly for their large international ships, many are looking to reduce the number of port calls they make within New Zealand. This is resulting in a significant rise in trans-shipped containers, where containers are transferred from one service to another, through Tauranga.

Strategic land holdings

Port of Tauranga owns 190 hectares of land on both sides of Tauranga Harbour, with about 40 hectares still available for development. The Port believes container throughput could more than double in the coming years through land reconfiguration, stacking cranes and other technology.

In addition to the 190 hectares of strategic land holdings around Tauranga Harbour, the Port owns and operates inland freight hubs in Auckland and Christchurch, and is developing an additional hub at Ruakura.

Investment attributes:

•  Difficult to replicate. As is the case with many high quality infrastructure assets, it would be difficult to replicate a similar sized port in another part of New Zealand. The geography of Tauranga (as part of the golden triangle) further adds to the Port’s incumbent position.
•  Long-term contracts and integrated supply chain. Long-term freight agreements with major exporters such as Oji Fibre Solutions, Kotahi (a joint venture between Fonterra and Silver Fern Farms) and Zespri provide the Port with certainty to plan for the future. Port of Tauranga has invested heavily in making itself ‘big ship’ capable. Having long-term relationships in place helps to ensure freight volume to justify the big ship services.
•  Transport links. Port of Tauranga has rail connections to Hamilton, Auckland and the central North Island and is the preferred mode of freight transport to the upper North Island.
•  Development/growth potential. Of the 190 hectares in Tauranga, about 40 hectares are available for expansion, and container throughput of the Port could potentially triple with land reconfiguration and stacking cranes. In addition, the Port has a number of strategic land holdings and joint ventures throughout New Zealand that can be further developed should volume growth justify the expenditure.
•  Leveraged to trade. Over the long-term, global trade should to continue to grow and Port of Tauranga is well placed to benefit from this thematic, particularly given its growing network of transport and logistics hubs throughout the country.
•  Excellent track record. In 1992, when it first listed, the Port reported a profit of $7.1m and paid a dividend of slightly under 0.5 cents per share. In 2019, net profit was $100m and the dividend per share paid was 18.3 cents (including a 5 cents per share special dividend). More impressively, this growth has been internally funded through profits generated by the Port, rather than through capital injections from shareholders. Including dividends and share price appreciation, Port of Tauranga has provided an average return to its shareholders of over 22% per annum.

What goes through the port?

Port of Tauranga is the international freight gateway for New Zealand’s imports and exports, and the only port in New Zealand able to accommodate the largest container vessels. The Port handles 30% of all New Zealand cargo, 35% of our exports and 37% of all shipping containers. Here we have highlighted some of the key commodities that pass through the Port.

This is an excerpt of an article first published in the April 2020 edition of News & Views. Craigs Investment Partners clients can view the latest edition of News & Views, which includes the full version of this article, by logging in to Client Portal.