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Why the growth surge for this large cap logistics group is only just starting

The share price of port and logistics group Qube Holdings Ltd (ASX: QUB) has surged ahead after it posted its full year results that blew past expectations and promised more good times ahead.

The stock rallied 11.4% this morning to $2.83, which makes it the fifth-best performer on the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index.

It wasn’t only profit growth that has gotten investors excited. Management also announced an unexpected special dividend of 2 cents a share on top of its final dividend of 2.8 cents.

Here are some of the other highlights from Qube’s FY18 result:

  • Earnings per share before amortisation (EPSA) surged 112.7% to 13.4 cents due to a big revaluation of its Minto and Moorebank properties.
  • Without the revaluation, underlying EPSA dipped 3.8% to 7.7 cents per share. This is due to its last capital raising and the inflated EPSA in FY17 from its Asciano shareholding. Even then, this figure is well ahead of the 6.69 cents a share consensus forecast.
  • Underlying revenue jumped 9.1% to $1.65 billion or circa 2.5% above consensus.
  • The bigger than expected contribution from its 2017 acquired Patrick business is the standout. This business injected $61.6 million into Qube, allowing management to declare the special dividend.
  • Total dividends paid in FY18 are 7.5 cents per share, which gives the stock a respectable yield of just under 4% when you include franking.
  • The revenue growth was driven by strong demand from forestry, mining and automotive import customers. Some investors were concerned that the drought gripping parts of New South Wales would be a big drag but the diversity of Qube’s client base has provided the group some protection.
  • Investors are also pleased to hear that the development of the Moorebank intermodal facility is on track as there were some fears of delays.

What’s more, management is expecting further significant profit growth in FY19, although the pace may not match the strong result from the last financial year as the 26.9% growth rate from Patrick can’t be sustained while Qube doesn’t expect a recovery in grain volumes from the drought this year and auto imports are likely to ease based on the latest auto sales figures from the ABS.

There’s lots to like about the result but it won’t settle the debate on whether the stock is overpriced. Naysayers point to its FY19 price-earnings (P/E) multiple of over 30 times as being too rich, while supporters willing to look longer term thinks the big premium is justified given the strategic and non-replicable nature of Qube’s Moorebank terminal.

I belong in the latter camp. It’s justified paying a premium for such an asset, particularly if you consider management’s strong track record.

There are plenty of other tech companies that are on much higher multiples and lower earnings too, so Qube doesn’t look overpriced when compared to other growth stocks.

Qube isn’t the only logistics stock that I think will outperform in FY19. Global logistics group Brambles Limited (ASX: BXB) is another worth watching closely as the strong results from US retailers like Walmart Inc give me confidence that the next 12-months is looking up for Brambles.

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Motley Fool contributor Brendon Lau owns shares of Brambles Limited. 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.

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