Rail freight operator Aurizon Holdings Ltd’s (ASX: AZJ) shares have touched an all-time high today of $5.26, after the release of the company’s half-yearly results.
While statutory results don’t paint a pretty picture for Aurizon, which first listed in 2010 under the name QR National, the underlying earnings tell a different story. Total revenue gained 5% on the prior corresponding period (pcp) to $1.965 billion, with earnings before interest and tax (EBIT) jumping 19% higher to $423 million. After paying interest and tax the underlying profit was $263 million, a rise of 18% on the pcp. Meanwhile shareholders are set to enjoy a 95% boost in the dividend to 8 cents per share.
The Coal division continues to be the major driver of Aurizon’s performance. An uplift in volumes helped deliver a 32% gain in underlying divisional EBIT. The Network division continues to be a major provider of earnings but results were flat, while the Iron Ore and Freight divisions put in sound performances, but off lower bases.
Competitor Asciano Ltd (ASX: AIO) which also has extensive rail freight operations is due to report 18 February. Asciano’s shares are higher today – up 0.8% – outperforming the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) which has gained 0.35%. Aurizon’s performance bodes well for Asciano’s results too; the market appears to be anticipating this in today’s gains.
Underlying earnings per share for the half were 12.3 cents per share and guidance provided by management included an upgrade on previous expectations for coal volumes. Based on management’s outlook it wouldn’t appear unrealistic for the second half to be as strong as the first half. Currently analyst consensus forecasts show EPS for the full financial year of 2014 at 23.5 cps.
However, this consensus view could be in for an upgrade, with the shares pulling back to trade at $5.18, the stock is on a price-to-earnings ratio of 22 times. With further cost savings to be delivered via the restructuring plan there are good prospects for earnings growth over the coming years. If this plays out then the current multiple while not cheap, doesn’t appear excessively expensive either.