AZJ
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.
Important Information: This document has been prepared by Aequitas Investment Partners ABN 92 644 165 266 (“Aequitas”, “our”, “we”), a Corporate Authorised Representative (no. 1284389) of C2 Financial Services, (Australian Financial Services Licensee no. 502171), and is for distribution within Australia to wholesale clients and financial advisers only.
This document is based on information available at the time of publishing, information which we believe is correct and any opinions, conclusions or forecasts are reasonably held or made as at the time of its compilation, but no warranty is made as to its accuracy, reliability or completeness. To the extent permitted by law, neither Aequitas nor any of its affiliates accept liability to any person for loss or damage arising from the use of the information herein.
Please note that past performance is not a reliable indicator of future performance.
General Advice Warning: This document has been prepared without taking into account your objectives, financial situation or needs, and therefore you should consider its appropriateness, having regard to your objectives, financial situation and needs. Before making any decision about whether to acquire a financial product, you should obtain and read the relevant Product Disclosure Statement (PDS) or Investor Directed Portfolio Service Guide (IDPS Guide) and consider talking to a financial adviser.
Taxation warning: Any taxation considerations are general and based on present taxation laws and may be subject to change. Aequitas is not a registered tax (financial) adviser under the Tax Agent Services Act 2009 and investors should seek tax advice from a registered tax agent or a registered tax (financial) adviser if they intend to rely on this information to satisfy the liabilities or obligations or claim entitlements that arise, or could arise, under a taxation law.