May 2016
May 2016
Following a pull-back in the share price, we added Aurizon Holdings (ASX:AZJ) to the portfolio (AZJ is the former QR National or QLD railway company).
AZJ has two key divisions, consisting of basically above-rail and below-rail assets. The above-rail assets or ‘train sets’ are focused on coal haulage for key miners with long-dated take or pay contracts to move both thermal and metallurgical coal from mines to port. AZJ has a dominant market share in QLD, but also a material amount of contract work in NSW. The below-rail division consists of an extensive rail network, the majority of which is regulated and therein, offers a consistent, predicable return profile to shareholders.
Despite the difficulty facing global coal markets and service providers to the industry, we believe AZJ is well placed – from a mix of regulated returns, solid contracts for coal haulage and finally, the relative positioning of QLD and NSW coal mines on global cost curves and their ability to endure. Both divisions offer quite consistent returns and represent strategic assets in terms of infrastructure exposure. AZJ management has done a good job in terms of improving productivity and improving margins post government privatisation and we believe it is capable of achieving its longer-dated margin targets.
View the April 2016 performance reports: