Mainfreight: an attractive long-term opportunity

Mainfreight has been in AFIC's portfolio of high-quality companies for a long time and is now among AFIC's top 10 investments. Portfolio Manager David Grace explains why Mainfreight remains an attractive investment over the long term.

Background

Mainfreight is a New Zealand based transport and logistics company providing transport, warehousing and international air and ocean freight services. The company was founded in 1978 by the current Chairman, Bruce Plested and listed on the New Zealand Stock Exchange in 1996.

Initially, the business was focused on the New Zealand market, but is increasingly becoming a global business with more than 70 per cent of profit now earned offshore. The company's Australian operations were established in 1989, the Americas in 1999, Asia in 2000 and Europe in 2011. The chairman and senior executives are well-aligned with shareholders through their substantial equity investment in the company.

Mainfreight focuses on customers moving essential, less discretionary everyday items such as food, beverage, DIY hardware and pharmaceuticals.

Long-term growth and financial strength

Mainfreight has taken a measured approach to offshore growth, steadily building capability and avoiding the inherent risk of large offshore acquisitions. The balance sheet currently has minimal debt and over $1 billion of property assets.

The company is cash generative, investing this cash flow into capacity growth to support future network densification. This allows Mainfreight to better service existing customers and attract new customers in all regions.

A long and successful track record of capital allocation has been a key driver of shareholder returns. Over the 10 years to 2021, Mainfreight has delivered revenue growth of 11 per cent per annum and growth in profit before tax of 15 per cent per annum.

Culture as a competitive advantage

Despite operating in a competitive industry, Mainfreight has differentiated itself and successfully won market share through high quality customer service. The company manages its accounts from local branches rather than a centralised location. Branch staff are incentivised on local productivity and the achievement of financial targets. Mainfreight has long held a preference of promoting staff within, accordingly many employees have a long association of living the Mainfreight customer focused culture.

Outlook

The company has seen many economic cycles over its 40-year history and throughout has a strong track record of significant profit growth over the long term. The prospects for future profit growth are significant as the company remains a small participant in large addressable markets.

The continued investment of free cash flow into capacity growth and the strong emphasis on customer service position Mainfreight to continue delivering excellent long-term returns for shareholders.