Rail freight operator AZJ’s core businesses are resilient cash generators with the stock still forecast to yield almost 5%, part franked over the coming 12-months. One factor putting off many investors is coal’s effective contribution to group revenue being 55–60%. The coal exposure is structural; Aurizon operates the Central Queensland Coal Network (CQCN), the world’s largest coal rail network, under a regulated access regime.
AZJ enters its result on the 17th as one of the ASX 200’s best performers year-to-date, with a high bar set by consensus. The result is less about FY26 (largely known via the regulatory reset) and more about FY27 volume and earnings trajectory, particularly whether bulk growth can credibly offset the long-run coal decline narrative.
- There are several moving parts we’ll be looking for in AZJ’s result as it works to evolve its business. Coal volumes remain the key long-term debate, with focus on FY26 haulage volumes, FY27 contract renewals and the extent to which take-or-pay agreements continue to protect earnings despite softer demand.
The QLD regulatory reset is also expected to provide a meaningful uplift to regulated network revenue, making confirmation of its earnings impact another major focus. Beyond coal, look for evidence that bulk continues to offset the structural decline in coal through new contract wins and improving margins, particularly in iron ore and agriculture. Finally, FY27 guidance and any capital management initiatives will obviously be important – a solid balance sheet in our view leaves scope for further buybacks or special dividends if cash flow remains robust.
Stocks like AZJ could be quasi beneficiaries of the property downturn and turnover collapse. NSW and Queensland have both been forced into significant downgrades of expected stamp duty revenue due to a housing sales slump attributed to rising interest rates compounded by the Federal Governments tax changes; a more lenient approach towards fossil fuels could potentially help fill the coffers, although it won’t be a sugar hit due to lead times.
- We wouldn’t be surprised to see AZJ continue to rotate between $4 and $4.50 with the stock looking attractive at the bottom end.
MM is cautiously bullish towards AZJ around $4.25
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