The Qube Holdings Ltd (ASX: QUB) share price jumped higher on news that NSW Ports is pouring $120 million into expanding the rail infrastructure at Port Botany.
The Qube share price jumped 1.5% to $2.68 ahead of the market close when the S&P/ASX 200 (Index:^AXJO) (ASX: XJO) index is up 0.9%.
How Qube benefits from the investment
The reason why investors are pleased with the NSW Ports’ investment is because it will better connect Qube’s Moorebank terminal to the docks of three terminal containers at the port.
The four-year project, which will kick-off in 2019, will create new on-dock rail capacity at Patrick’s Port Botany Terminal (Qube and Brookfield own 50% of Patrick).
This will ultimately deliver one million TEU (twenty-foot equivalent units) capacity and NWS Ports said it will look to invest in two other container terminals.
The rail expansion will reduce the number of trucks needed to transport goods from the port to Qube’s intermodal terminal in Moorebank, but it’s not just fuel that will be saved.
Patrick and Qube are trying to automate as much of the work as possible and given the history its managers have with the unions representing dock workers, it’s probably a good move from a business perspective.
Squeezing more from Moorebank
Anything that increases the efficiencies at Moorebank will be instrumental in driving QUB’s share price as the terminal is the only reason why anyone would invest in the stock.
But analysts are divided on whether Qube’s stock is worth buying because near-term profits do not justify the company’s share price as the stock is trading on an FY19 consensus price-earnings multiple of over 34 times.
On the other hand, those that back the stock point to the strategic value of Moorebank as the asset cannot be replicated and is perfectly positioned as a gateway for goods to flow into Sydney.
I belong to the latter camp even though Qube is essentially a one-trick pony. The thing is, this race only has one pony running in it.
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.