Asciano: Transporting profits higher

RELATED QUOTES

SymbolPriceChange
AIO.AX5.36+0.0900
AZJ.AX5.10+0.030
KSC.AX1.56-0.0100
QUB.AX2.27+0.0900
TOL.AX5.22+0.070

Leading rail freight and port operator Asciano (AIO.AX) has produced an impressive half-yearly result that shows the benefit of contract wins, capital investment, and cost controls undertaken by management. Revenues grew a healthy 12%, while net profit after tax but before material items, increased  by a substantial 47.5% on the previous corresponding period. Management’s outlook for the full year was also upbeat, with coal volumes looking particularly robust. Given the higher margins received in the coal business, the increased revenues to flow from recent coal haulage contract wins should provide a healthy boost to earnings at the full year.

Given the importance for shareholders that their investment achieves a return above the cost of capital, it is great to see Asciano’s management focusing on this metric and reporting to shareholders how the business units have performed against this benchmark. It is a sign of a management team acting in the interests of shareholders and focussed on creating value.

With Asciano the first of the freight transport companies to report, the bar has been set high for the other major players in the sector. It will be interesting to see how port operator Qube Logistics (QUB.AX), freight forwarder and logistics provider Toll Holdings (TOL.AX), rail freight operator Aurizon Holdings (AZJ.AX) (previously known at QR National), and trucking firm K&S Corporation (KSC.AX) have fared over the past six months.

Foolish takeaway

With large fixed cost bases, the transportation sector has good leverage to improve through improved capacity utilisation. Asciano’s results shown the benefits of this leverage and in turn the company has rewarded shareholders with a 50% increase in the interim dividend to 5.25 cents per share. With a current low payout ratio and the majority of its capital expenditure program largely complete, there should be further room to increase the dividend in the future.

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More reading

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