Toll Holdings Limited (ASX: TOL), the integrated logistics provider, has developed a global business that operates in Australia, Asia, Europe, the Middle East and North America. When driving around in your community or motorways, you may see the Toll name on semi-tracker trailers or delivery vehicles a lot since it is the largest road freight transport company in Australia.
The domestic market is a highly fragmented industry due to the large number of small and private companies and Toll holds about 8.2% market share as the leader. Since 2008, the company's road transport revenue has grown from about $3.1 billion to $4.1 billion, according to IBISWorld.
The privately held Linfox Proprietary holds the number two position with about 4.2% market share. In third is K&S Corporation Ltd (ASX: KSC) with about 1.2%.
Its scale gives a definite advantage when getting contracts from major retailing companies like Coles, which is owned by Wesfarmers Ltd (ASX: WES) or Woolworths Limited (ASX: WOW). Since these companies won't regularly deal with small contractors directly. The retailers may also have agreements to have delivery semi-trailers branded with their names for advertising and name recognition.
Over the past two years, it has had heavy abnormals charges that reduced reported NPAT after abnormals from $294.8 million in 2011 to $91.7 million in 2013, yet the underlying NPAT has risen from $273.9 million in 2012 to $282.7 million in 2013.
Long-term debt of $854 million as of 30 June 2013 was about three times its underlying NPAT, so its borrowings are manageable.
About a year ago the share price rose to a high of $6.14 before declining to about $4.70 in June. Currently it is at $5.72 and has a PE ratio of 14.9. A consensus of analyst forecasts points to a estimated median 5.5% earnings per share growth for FY2014.
The company will be reporting its half-year results this week, so that should give an indication where earnings are headed for the full year.
Foolish takeaway
Scale of business is one of the deciding factors for transportation companies because their customers have to keep shipping costs as low as possible since their profit margins are not incredibly big to begin with. By Toll having major contracts with such large and steadily growing companies, it can grow along with them.
