Aurizon Holdings Ltd (AZJ)
I'm interested to hear if you are considering Aurizon for the Income portfolio and if not why not. I note that it has just paid a worthwhile dividend.
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Answer
Hi Angela,
AZJ is Australia’s largest rail freight and logistics company, focused on transporting bulk commodities like coal, iron ore, agricultural products and general freight across the country. The company just paid a 12.5c, 90% franked dividend with the stock forecast to yield 5.3% + franking over the coming 12-months.
The company delivered a strong 1H Net Profit of $235 million, up +1% YoY, but it was the reaffirmed Ebitda guidance for the full year that propelled the stock to its best day since COVID:
- Total Revenue $2.1bn, +3.8% YoY, just above $2.05bn consense.
- Free cash flow of $335mn, +41% YoY.
- Underlying Ebitda of $891mn, +9.5% YoY.
- FY dividend expected to be 22-23c.
The reaction of the stock on the day showed it was a beat although some analysts cautioned it was driven by coal which many believe can reverse in 2H. The stock received a mixture of upgrades & downgrades afterwards with sub $4 the mean PT.
- We can see AZJ making new highs in the $4.25-4.50 but it’s not exciting from a likely capital gain perspective but as you say the yield is attractive.
As for inclusion in the Income Portfolio, it’s more a case of what we already own in the space. We prefer our current combination of coal miner (NewHope) – providing exposure to coal prices, and Coal port operator (Dalrymple Bay Infrastructure) which provides exposure to volumes.
