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US$157 million Port of Napier IPO fails to excite

US$157 million Port of Napier IPO fails to excite

Stock market analysts are not excited by the initial public offering (IPO) of the container- and forestry-products focused Port of Napier on New Zealand’s east coast.

“Of late [the] bulk of growth has been driven by an increase in export of forestry-linked products on the back of increased availability. As per the company’s own forecast, forestry volumes might begin to flatline soon, which would lead to slower growth in the near-term and any decline over the longer term would have an adverse impact on the company,” wrote Sumeet Singh, head of research at Aequitas Research, who publishes insights via the Smartkarma equity research platform.

“…It has been reporting non-exciting but steady growth over the past few years mostly led by growth in forestry-linked products. Nonetheless, the company’s near-term prospects don’t appear very exciting and over the longer term a decline in harvesting of trees could lead to a fall in volumes, although this might still be well over a decade off. I’ve labelled this insight bullish as there is nothing as such wrong with the company, apart from a lack of robust growth,” Singh adds.

Current ownership
The port is indirectly owned by Hawke’s Bay Regional Council through its investment company HBIC. It is selling off 45 percent of the equity following a capital review on how to best fund the port.

A new wharf is needed. The purpose of the new wharf is to handle bigger ships, handle cruise ship demand, allow 24-hour berthing of box ships and generally provide greater operational resilience.

A bigger wharf will boost operating efficiency the port says, because currently vessels have to be shuffled around to fit all ship movements. And, of course, that’s costly. The new wharf will be able to handle box ships up to 320 meters (1,050 feet) in length and cruise ships up to 360 meters in length.

But building a wharf don’t come cheap.

The new wharf has a construction price tag between NZ$173 million and NZ$190 million (US$116 million and US$128 million). The council wants construction to begin in 2020 and be ready for use in 2022.

IPO: equity for sale; indicative prices per share
Hence the IPO, in which 45 percent of the equity will be sold. The council’s investment company will continue to hold the remaining 55 percent.

The equity to be sold also represents 90 million shares. An indicative price range of NZ$2.27 to NZ$2.60 has been set.

So that means the council hopes to raise between NZ$204 and NZ$234 million (US$137 million and US$158 million).