The Motley Fool

Aurizon Holdings Ltd (ASX:AZJ) is down 3% as the company forecasts headwinds in 2019

Shares in Aurizon Holdings Ltd (ASX: AZJ), the ASX listed rail freight operator were down 3% after the company provided its strategy and operations update to investors.

Aurizon confirmed its FY 2018 EBITDA guidance of $900 million – $960 million but also announced that a number of matters would negatively impact its FY 2019 earnings. The matters include:

  • Uncertainty over regulatory approvals from competition authorities for the sale of the Acacia Ridge Terminal and Intermodal Queensland for $220 million. If the transactions do not proceed, the Intermodal Queensland business will be closed with closure costs incurred.
  • Cessation of iron ore mine operations with a combined EBIT impact of $50 million in 2019.
  • Increase in maintenance and other costs in the Coal division which are likely to offset volume growth and efficiencies from transformation.

Cause for optimism?

Despite the expected FY 2019 setback, it’s not all doom and gloom for Aurizon. The company’s transformation program has been increasing efficiencies and labour productivity.

Aurizon now expects to reach its three-year (FY 2016 – FY 2018) transformation target of a $380 million benefit. That, along with higher coal volumes and execution of the Bulk execution strategy is expected to result in EBIT growth in FY 2020.

The company has also been increasing its free cash flow which was $340 million in FY 16, $634 million in FY 17 and is expected to be between $650 million and $700 million in FY 2018.

Foolish Takeaway

Overall, I think Aurizon is a solid business with a strong competitive advantage that could secure dividends for shareholders.

Its 5.4% dividend yield is attractive but my only concern is that the majority of its capital expenditure is not going towards growth projects. Given that 100% of its earnings are being paid back to shareholders either as a dividend or via share buybacks, it’s not on my buy list for now. I’m currently looking for stocks with better growth prospects.

If dividends are what you are after then you need to read this FREE REPORT prepared by our team of experts.

Breaking news: ASX companies set to raise dividends!

It's been a nail-biter of a reporting season here in the first half of 2018.

But the real action, in my opinion, is what companies are doing with dividends.

What does this mean for you? Well there is one stock I've found that could very well turn out to be THE best buy of 2018. And while there's no such thing as a 'sure thing' when it comes to investing - this ripper might come as close as I've ever seen.

Click here it's FREE!

Motley Fool contributor Kevin Gandiya has no position in any of the stocks mentioned.

You can find Kevin on Twitter @KevinGandiya.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

NEW. Five Cheap and Good Stocks to Buy in 2019…

Our Motley Fool experts have just released a brand new FREE report, detailing 5 dirt cheap shares that you can buy today.

One stock is an Australian internet darling with a rock solid reputation and an exciting new business line that promises years (or even decades) of growth… while trading at an ultra-low price…

Another is a diversified conglomerate trading near a 52-week low all while offering a 2.8% fully franked yield…

Plus 3 more cheap bets that could position you to profit over the next 12 months!

See for yourself now. Simply click the link below to scoop up your FREE copy and discover all 5 shares. But you will want to hurry – this free report is available for a brief time only.

CLICK HERE FOR YOUR FREE REPORT!