The Aurizon result is out. Solid result, guidance maintained.
Interestingly, the guidance range ($1.425b-$1.500b) encompasses a much wider range of positive outcomes than consensus, for FY22, which is struck at the bottom end of the range ($1.47bn).
The odds of AZJ being able to “beat or meet” seem favourable to us.
The standout continues to be cashflow generation. Most of AZJ’s contracts are fairly long dated, and as such Aurizon are insulated from the commodity price risk via take or pay contracts, albeit they do face bankruptcy risk if clients go under, so this only true to an extent.
EBITDA was down 1%, and up modestly excluding the Wiggins Island Rail Project one off. Indeed, ex the WIRP outcome, EBITDA grew by mid-single digits, which is a pleasing outcome for an infrastructure stock.
Against that growth, looking forward, the embedded earnings expectations call for a substantial fall in earnings over the next decade, just to produce a “market like” rate of return. In other words, AZJ is tracking ahead of this implied run rate.
That’s a compelling disconnect, in our view.
Aurizon pointed to contract wins in the period, and described the bullish outlook for synergies resulting from the One Rail integration, which will lift the overall bulks contribution to group revenues.
AZJ have yet to divest/sell the One Rail coal assets, which means dividends in the period are lower than what we think they will average moving forward.
As such, Aurizon strikes us as one of the better risk-return yield plays out there on a 15 year view.
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