citi initiates coverage on aio with a ...buy, page-4

RBS Report:

Asciano Group

Change of CEO

Mark Rowsthorn is to be replaced by John Mullen as CEO of Asciano. The timing
of the change is a surprise to us, although Rowsthorn had previously indicated
he was likely to move on in the medium term anyway. Mullen's (ex DHL CEO)
transport credentials look solid.

Change of CEO earlier than we expected

􀀟 The board has announced John Mullen will succeed Mark Rowsthorn as CEO and MD of AIO, commencing on 14 February. Rowsthorn will remain as an employee until 15 June. The wording of the release suggests the board felt the time for change was sooner rather than later. The timing is a surprise to us, although Rowsthorn had previously indicated he would likely move on from AIO in the medium term anyway.

Mullen has a solid transport CV

􀀟 Mullen has very solid transport credentials having been Global CEO of DHL Express from 2006-2009 and having held a number of positions with Deutsche Post/DHL from 1994. Prior to that he held a number of senior positions with TNT and recently has been a director at a number of high-profile companies including Telstra, Brambles and MAp Airports. While we don't know much about his management style yet, his credentials suggest he is a high-calibre individual. While AIO will be a slightly different beast to DHL/TNT, his experience will nevertheless be valuable within AIO's businesses. In our view, he inherits a quality team of senior managers, which will make his transition into AIO
reasonably smooth.

What will he do?

􀀟 We don't think there is much that needs to be changed operationally, but as an external appointment, Mullen will have the benefit of being able to take a fresh view of the assets.

Potentially this suggests a greater likelihood of selling off the container ports business, as we sensed some disagreement between the board and Rowsthorn on whether it should form part of AIO's long-term plans. Regardless, we believe this year is likely to see an improved performance at the ports, so we think the business could act as a share price catalyst whether a transaction occurs or not.

We continue to like AIO at these levels

􀀟 AIO has some positive momentum behind it after hitting recent lows in January. We still see upside to our target price of A$1.84 and continue to prefer it over QR National given it is trading at a discount.