One of the hottest areas of the ASX in 2015 has been the transportation sector.
In February, shareholders of the now delisted Toll Holdings Ltd received a $6.5 billion takeover offer from Japan Post at $9.04. The offer price represented a premium of around 50% to the pre-announced share price.
The next deal was even bigger. In July, the $8 billion rail freight and port operator Asciano Ltd (ASX: AIO) announced a takeover offer from Brookfield Infrastructure Partners pitched at a near 20% premium to the prevailing share price.
In both cases, the offers have represented share price levels not seen in at least five years and arguably offering shareholders the opportunity to realise significant value.
These two massive takeover offers highlight the value which private owners are ascribing to Australian transportation assets and may act as a beacon to investors to suggest further merger and acquisition (M&A) activity could occur within the sector.
One stock which could be a prized candidate is Aurizon Holdings Ltd (ASX: AZJ). Aurizon was formed out of the old Queensland Rail assets with the company remaining a key owner and operator of rail freight businesses throughout Queensland and increasingly other states particularly NSW and WA.
The monopolistic-type assets which Aurizon controls should provide owners with a defensive stream of earnings. Indeed solid earnings growth is forecast this year according to research provided by Morningstar, which shows earnings per share growth of 12.8% in the 12 months to 30 June 2016.
In this low growth economy, double-digit earnings growth is highly prized.
With the stock up just 6.1% over the past 12 months, which is ahead of the 1.3% gain in the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) but well behind the 34% gain in Aurizon and the 69.5% rally in Toll's shares (both inclusive of M&A activity), it is arguable that the market is yet to price in the potential for an Aurizon takeover to emerge.
