Investment Thesis:
- Undemanding valuation relative to the market.
- Current share price is factoring in several negative sentiments already.
- Higher (and stabilizing) commodity prices should translate into improving volumes.
- Better than expected performance on the cost out.
- Attractive dividend yield
- Mostly defensive earnings backed by contracts, providing stability in shareholder returns.
- The Company does have long-term plans to reduce exposure to coal.
Key Risks:
- Significant decline in commodity prices leading to mine closures or reduce volumes from customers. Any potential declines in iron ore prices.
- Structural decline in some commodities (e.g. coal).
- High costs impacting margins.
- Contract repricing resulting in longer term revenue loss.
- Pricing pressure to increase.
- Potential cuts to dividends given the elevated payout ratio.
- Weather related impacts.
Key highlights:
- Management noted that they have identified growth opportunities. Near-term earnings appear to be more stable.
- Group revenue of $3,019m was down -1%, EBITDA of $1,482m was up +1% (with operating costs down -4%), and NPAT of $533m mostly unchanged
- The flat earnings outcome for the year were driven by a decline in Coal volume being offset by higher earnings in Bulk and Network, primarily due to the commencement of WIRP fee billing.
- Cost improvements came on the back of lower access and lower fuel expenses, with cost pressure from volume growth in Bulk being offset by transformation benefits
- AZJ maintained its 100% dividend payout ratio with a final dividend of 14.4cps (up +5% YoY + 70% franked), taking FY21 dividend to 28.8cps.
- The segment wise contribution of Aurizon is as follows:
- Network: FY21 revenue was up +4% YoY (Track Access +4%, Services & Other -19%) and EBITDA was up +6% to $849m. Segment earnings were driven by revenue growth and supported by lower operating costs (down -3%) and Energy & Fuel expenses (down -5%).
- Coal: FY21 revenue was down -9% YoY (Above Rail -8%, Track Access -13%) and EBITDA down -13% to $533m, with earnings supported by lower operating costs (down -4%) and access costs (down -11%). Top line growth was impacted by a decline in haulage volumes over the year.
- Bulk: FY21 revenue was up +4% YoY (net of access, revenue was up +10%), driven by new contract and services growth. EBITDA was up +27% to $140m, with earnings driven higher by lower operating costs (down -6%) and access costs (down -23%)
Company Description:
Aurizon Holdings Ltd (AZJ) operates an integrated heavy haul freight railway in Australia. It transports various commodities, such as mining, agricultural, industrial and retail products; and retail goods and groceries across small and big towns and cities, as well as coal and iron ore. The Company also operates and manages the Central Queensland Coal Network that consists of approximately 2,670 kilometres of track network; and provides various specialist services in rail design, engineering, construction, management, and maintenance, as well as offers supply chain solutions. In addition, it transports bulk freight for customers in the resources, manufacturing, and primary industries sectors. The Company was formerly known as QR National Limited and changed its name to Aurizon Holdings Limited in December 2012. AZJ is headquartered in Brisbane, Australia.
(Source: Banyantree)
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Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.