New Zealand Professional Investment Services Firm

Forsyth Barr

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

Infratil Options, Execution, Track Record —&nbsp;Upgrade to OUTPERFORM

OUTPERFORM
We walk away with three main takeaways from&nbsp;IFT's&nbsp;FY21 result and upgrade to OUTPERFORM. First, and most importantly,&nbsp;Vodafone&nbsp;NZ appears to finally be about to turn the corner. If we add back COVID-19 related losses (primarily high margin roaming) we estimate that EBITDA margins were c. 25%, up +2% versus FY20; (2) CDC guided for a soft FY22, with EBITDA up "only" c. +10–15%. However, management suggested that the forward two year CAGR would still be in-line with the historical "+25–30%", suggesting ~+40% growth in FY23; (3) after several years of no dividend growth IFT increased its dividend by +3% and indicated it would continue to grow reflecting the increased confidence around cash flow generation from&nbsp;Vodafone&nbsp;and the recently acquired diagnostic imaging businesses.&nbsp;


What's changed?&nbsp;



Earnings:&nbsp;Minor near-term earnings revisions (FY22E/FY23E/FY24E +1%/+2%/+4%)
Target price:&nbsp;Increased to NZ$8.50 from NZ$8.25
Rating:&nbsp;Upgraded to OUTPERFORM from NEUTRAL



Vodafone; solid result, stronger guidance


Vodafone was the key area of surprise with EBITDA of NZ$447.8m, ahead of the midpoint of guidance and our forecasts of NZ$439m. FY22 guidance for EBITDAF of between NZ$480m to $510m is strong and at the mid-point represents +10% growth on FY21, a good result given FY22 will still include a large portion of COVID-19 impacts. Medium-term commentary suggests that Vodafone NZ is "on the path" to reach EBITDA margins of around 30%, up from 23% in FY20 and FY21. This is not the first time management has suggested margins could approach peers, but it comes with increased credibility after delivering flat margins during a year with almost no high margin roaming revenues, which we estimate contributes c. 2% to the EBITDA margin.&nbsp; We have reduced our Vodafone NZ valuation discount to Spark (SPK) from 20% to 10% reflecting our increased confidence in the turn around execution.&nbsp;&nbsp;


CDC; soft guidance commentary but should see an acceleration of growth in FY23


The only weak aspect of IFT's guidance commentary was CDC. FY22 EBITDAF guidance is for A$160 to $170m&nbsp; (+12% growth at the midpoint), a marked slowdown from CDC's ~+30% FY17-FY21 CAGR. The slowdown principally reflects timing impacts given CDC has a number of contracts commissioned where revenue won't be received till FY23 but with front loaded costs. Importantly, management indicated a two year forward EBITDA CAGR in the order of +25–30% which would imply 40%+ EBITDA growth in FY23.&nbsp;



Aaron Ibbotson
aaron.ibbotson@forsythbarr.co.nz
+64 9 368 0024





Matt Montgomerie
matt.montgomerie@forsythbarr.co.nz
+64 9 368 0124



Infratil: Options, Execution, Track Record — Upgrade to OUTPERFORM

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Infratil: Options, Execution, Track Record — Upgrade to OUTPERFORM