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This small freight company could be the next big freight company

While the $5.5 billion Asciano (ASX: AIO) and the $4 billion Toll Holdings (ASX: TOL) are widely followed and owned by investors the $1.7 billion Qube Holdings (ASX: QUB) continues to fly under the radar of many investors — that could all be about to change thanks to last week’s record profit result.

Qube’s underlying revenues grew 27% to over $1 billion, while underlying profit increased by 20% to $74 million and by 13% to 8 cents on an earnings per share basis. The company declared dividends for the year totalling 4.5 cents, a 10% increase on 2012.

The star performer for Qube was the Ports and Bulk division, which benefited from the firm’s mine-to-ship solutions and strong volumes of imported motor cars. Revenue from this division was up 41%, while earnings before interest and tax (EBIT) were up a whopping 61%. Meanwhile the Logistics division — which includes transport, rail, container and warehousing services — grew revenues by 13% and EBIT by 22%.

Qube’s outlook provides reasons for investors to be relatively positive about the near-term earnings trajectory. The company expects strong levels of bulk export volumes to continue and solid new car volumes too.

On the flip side, management does expect overall container volumes through the ports to grow at below historical rates and for there to be limited improvement in general and project cargo volumes. Importantly, at an operations level the company expects improvements in asset utilisation rates and cost efficiencies to lead to further expansion in profit margins.

Qube

Source: Google Finance

Foolish takeaway

As the chart above shows, the past five years have provided spectacular returns to Qube shareholders with the share price up nearly 137%. In contrast the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) is practically flat with a return of just 3% while Asciano – which was spun out of Toll in 2007 – is down 64% and Toll down nearly 20%.

Qube’s share price has run hard but it has been backed by revenue and earnings growth. With management anticipating that Qube will continue “its record of delivering revenue growth and increased earnings per share in FY14” there could still be more share price appreciation ahead.

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Motley Fool contributor Tim McArthur owns shares in Toll Holdings.

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