Aurizon/AZJ

A solid beat relative to consensus from AZJ (let your eyeballs compare the actuals, orange, to blue, the estimates, below).

The market has, more or less, shunned Aurizon after a) a few wet years of La Nina saw volumes suffer (as mines were flooded, which limited production from key customers) b) coal exposure, as ESG-oriented investors steer away from the stock, and those worried about the long run viability of assets also stay away c) wary of OneRail acquisition, even as it solves a chunk of the coal exposure problem.

On the volume front, the news was much better; with coal running a much higher quarterly average (mt’s) than the prior year (44/45 vs 47/48).

The strategy to grow bulks and containerised freight as means to reducing the coal exposure by 2030 (to ~10-20% of the business) appears to be working well. Plenty of new contract wins across most parts of the business supported the result.

The inflation and rate recovery from regulatory resets finally flowed through (see the last bullet point). Recall that we’d viewed AZJ as a solid inflation and rate hedge, but that it would take time to go through the various regulatory resets.

The market will also like the dividend commentary (see the third statement below)…

… which is looking possible given that cashflows have improved.

There some additional cashflows to be received (deferred consideration in the OneRail acquisition, amongst others) that will help put further downwards pressure on the debt pile, which should be ~3x ND/EBITDA at the end of the financial year.

Overall, strong result. Aurizon didn’t upgrade their guidance, despite this strong half, and despite the contract wins, because wet weather late in the year, which continued into January, took some of the gloss off.

If we assume weather continues to normalise, it means AZJ should see those modest headwinds abate, and what’s left looks like a business growing nicely.

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.

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