With the stockmarket languishing at 11-month lows, brokers have been forced to reassess the profit outlook for many Aussie companies, while also keeping a close eye on bargains.
We’ve tracked down no less than 29 buys from brokers Australia-wide over the past week (see table below). It comes as little surprise that miners and mining services companies feature heavily as brokers bet on the continuation of the resources boom. And interestingly, a number of blue chips appear on the list such as Woolworths, Bank of Queensland and Myer, as well as biotechs QRxPharma and Pharmaxis. Of special interest are the price targets on some of these stocks; RBS has a price target of $12.95 on BOQ, a healthy 61.3% premium to the current share price, while Citi has a $1.45 price target on its speculative buy Resource Generation (RES), a whopping 116% premium.
Today we target Australia’s leading transport infrastructure company Asciano (AIO). The stock has recently climbed off 12-month lows and brokers are starting to take note.
Austock – BUY, price target $1.90
Perennial Growth High Conviction Fund – BUY
William Shaw Securities – BUY
Chart: Share price over the year to 29/07/2011 versus ASX200 (XJO)
Asciano (AIO) can boast that it is Australia’s leading transport infrastructure company, with the combination of the Pacific National rail operations and the Patrick ports and stevedoring businesses. Via these two businesses AIO owns and operates a large range of infrastructure assets including ports and rail throughout Australia.
According to Asciano, Pacific National is Australia’s leading provider of bulk haulage services for coal, grain and bulk industrial products. ‘We are also the leading provider of intermodal services – providing interstate rail freight services to freight forwarders and steel manufacturers.’ it says.
Through Patrick’s ports and stevedoring business, Asciano operates container terminals with operations in Australia’s four largest container ports. ‘We provide a network of ports-related freight services and logistics to importers and exporters…we are Australia’s leading operator of private ports and bulk cargo terminals, and the country’s largest provider of bulk and general stevedoring services.’ it says. Through Patrick’s, AIO also provides a supply chain solution to the motor vehicle industry via its Patrick Autocare business.
Although AIO shares had been on the slide over recent months – tumbling 16% in the six weeks to May 24th to a 12-month low of $1.49 – several large contract wins has seen a reversal of fortunes for shareholders, such as the 5-year contract it signed last week with Danish shipping company Maersk which extended its contract to move 503,000 containers a year and as a sweetener added a further 190,000 containers per annum. UBS, which has a buy on AIO, says that its new contract with Maersk “will materially help sentiment on the stock and boost confidence in 2012 financial year forecasts.” .
Earlier this month the freight rail company had renewed an existing coal haulage contract with Coal & Allied Industries, majority owned by resources giant Rio Tinto. The contract is for the movement of up to 30 million tonnes of coal per year from July 1.
And two weeks earlier another deal was signed; Asciano securred a long-term contract with BHP Mitsui Coal Pty Ltd to haul 4.2 million tonnes of coal per year in Queensland. Asciano says it will haul the coal from next January via the northern missing link, which will connect the Newlands and Goonyella coal systems when the project is completed in early 2012. Chief executive John Mullen said the contract win supported Asciano’s plans for growth into the expansion of the Port of Abbot Point, near Bowen in north Queensland. ‘A key objective was to maximise the opportunity for tonnage through the newly expanded port of Abbot Point,’ Mr Mullen said. ‘The result is an innovative operational solution and contract that drives the efficient behaviour of both rail and coal operator.
Austock’s Andrew Chambers has reviewed the key assumptions for AIO and has subsequently made a number of changes to forecasts. Although there is a 5% to 6% decline in future year EPS forecasts, Austock has upgraded AIO to a buy with a medium risk rating, saying that the recent contract wins and debt feedback help to take some risk out of the business.
‘We have had AIO in a holding pattern for nearly 3 years due to our below consensus view on both EPS and valuation,’ says Chambers. ‘Whilst we do still see some consensus EPS risks, we are now comfortable with AIO on absolute and relative valuation grounds.’
Austock’s lower earnings forecast comes from a downgrade in 2012 intermodal rail growth forecasts from +3% to flat, the high Aussie dollar and carbon tax uncertainty, a downgrade to container port industry lifts from high single digit to mid single digit, and a small increase in real labour costs.
On the flipside, Austock’s DCF valuation rises due to a reduction in its equity beta by 5 basis points due to AIO de-risking from major coal contract renewals on better terms, positive debt refinancing, and valuation roll forward from June 11 to June 12. ‘The net impact is our DCF rises 13cps to $2.02/security,’ says Austock. ‘With port peers on FY’12f EV/EBITDA of 11.0 times and rail on 7.5 times (or blended average of approximately 9.0 times versus AIO on 7.9 times) we now see good relative value…AIO would need to trade at $1.85 to currently match its global peers.’
Shawn Uldridge, of William Shaw Securities, concludes the worst of the global financial crisis is over and now is the time to take a chance on growth stocks. Uldridge believes Asciano offers a relatively cheap entry point as the market largely ignored it after widespread selling during the global financial crisis. He says Asciano struggled through the GFC under a high levels of debt. But since the 2009 capital raising, the company is continuing to perform much better in response to the commodities boom.
“In my client notes, I write frequently about Asciano and would like to re-iterate our confidence in this ports and rail infrastructure play,” Uldridge says. Asciano stock has been mostly flat since August 2009, and Uldridge says it hasn’t been re-rated for the additional traffic flowing through all areas of its business due to increasing commodities production. The company’s latest half year results recently revealed an 8.8% increase in revenue to $1.6 billion. Earnings before interest and tax increased 17.4 per cent to $71 million. “We believe the company has the ability to add significant value to portfolios over the next two years,” he says.
Ian Myles from Macquarie Securities also has a buy on AIO. He believes that favourable bulk growth drivers, ‘take or pay’ contracts and strict internal return hurdles of 15-18% mean earnings growth is more certain than other cyclicals. ‘Positive catalysts include bulk rail contract momentum and volume recovery in the containerised and automotive divisions,’ he says.
Based on Thomson Reuters data, it seems that analysts have recently become bullish on AIO. Five analysts currently have a buy on AIO, three have an outperform and three have a hold. This is a leap from three months ago, when there was only one buy, two outperforms and eight holds, with no sells.
Stock code: AIO
Charts: Asciano Limited
More news: Asciano Limited
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