Kick Off: Telstra Corporation Ltd v Aurizon Holdings Ltd

Facing off in the infrastructure pool, crowd favourite and major contender Telstra Corporation Ltd (ASX: TLS) is taking on relative newcomer Aurizon Holdings Ltd (ASX: AZJ) in a highly anticipated pool stage round of the ASX world cup.

Pre-match commentary and stats

Telstra’s ducts, existing customer base, copper wires and fibre optic connections make it the backbone of Australia’s communication network. In comparison Aurizon, formerly Queensland Rail, owns rail lines that move iron ore and coal from mines to export terminals. Unlike the miners, it is not negatively impacted by falling prices (in the short term), because its profits depend on volume.

Telstra Aurizon
Market Capitalisation $64.8 billion $10.25 billion
Forecast FY 14 P/E ratio 16.18 19.87
Forecast FY 14 Yield 5.5% Fully Franked 3.4% partially franked
FY 2013 Cashflow Yield 12.87% 8.3%
Gearing 97.8% 38.2%

Notes: Thompson Consensus Forecasts, and stats based on last reports.


When it comes to price, Telstra streaks past Aurizon in the blink of an eye. Cashflow yield is stronger, forecast dividend yield is stronger, and the forecast P/E ratio is lower. Put simply, one Telstra share gives you more bang for your buck than does one Aurizon share – there’s no doubt that the crowd have it right on this one.

Telstra Scores: 1 – 0 to Telstra!

When it comes to debt it’s a different matter, with Aurizon having slightly stronger interest cover, lower gearing and a lower debt/equity ratio. Telstra has a look in due to the recent sale of their stake in CSL and Sensis, but Aurizon has it.

Aurizon Scores thanks to weak defending by Telstra: 1 – 1 and looking close!

No sooner has Telstra kicked off and they speed ahead thanks to far superior growth prospects. Due to their large network and customer base, whichever way telecommunications grow, Telstra is poised to profit. Already the leader in mobile, Telstra is going to benefit as more and more data is shared online and wirelessly. In comparison, Aurizon’s attempt to build a new port (and dump dredge in the Great Barrier Reef Marine Park) has found opposition from every quarter – including big international banks (such as Deutsche Bank) who refuse to lend to them. On top of that, there are doubts about whether the project is viable with coal prices where they are.

Telstra scores two goals just minutes apart thanks to an excellent long distance strike and then an obvious foul in the penalty box by Aurizon!

3 – 1 to Telstra!

In the closing minutes, Telstra’s captain David Thodey shows what he’s made of. Telstra was ahead of the game with mobile growth, has looked to Asia for investment opportunities and is ahead of the game again with its wifi hotspot plan. In comparison, the Aurizon Chairman struggled to understand a question about the risk of stranded assets.

Telstra captain David Thodey scores with a neat sidestep of Chairman Prescott!

4 – 1 to Telstra

Believe it or not, at 89 minutes, Prescott (a defender) scores a goal! However, it was an own goal and related to the shareholder disapproval of executive pay (a first strike). Ouch!

The game ends. 5 – 1 to Telstra. A harsh result for Aurizon, perhaps, but a well-deserved win for Telstra, one of the competition’s main contenders.

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Motley Fool contributor Claude Walker (@claudedwalker) does not own shares in any of  the companies mentioned in this article.

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