ubs report - $2.10 target

A $1.1bn write-down tidies up b/sheet
􀂄 Cutting Container Ports assets by 28%
Ascianos A$1.1bn write-down to assets tidies up a legacy issue of inflated asset
values from when Toll Holdings acquired Patrick Corporation on c.15x EBITDA.
The write-down is set out in the table within and effectively reduces book capital
employed in the Container Ports division by 28% to A$2.2bn. Our balance sheet
forecasts change accordingly, but there is no change to operating or CF forecasts.
􀂄 Returns should reach 15% by FY15E
We see the Container Ports division generating 9% ROA in FY12E, up from 6% in
FY08. But new entrant competition is likely to see this remain sub 10% despite our
estimate of 15% return on replacement cost of assets. Other divisions are likely to
post more decent returns (see chart within) because of larger step changes in
profitability (Intermodal, A, B & G) and injection of new capital with higher
incremental return (Coal). Overall, we see group ROA reaching 15% in FY15E, up
from 7% in FY09. Return on new capex is likely to remain a healthy 15-17%.
􀂄 Valuation looking more attractive
Ascianos recent underperformance against the market has brought its FY11E P/E
down to 17x. This is still a 30% premium, but likely justified on high growth and
barriers presented by strong incumbent positions in asset heavy industries. Value is
starting to emerge but we remain cautious in the near term on sentiment fallout in
the resources sector and potential negative news flow in container ports.
􀂄 Valuation / price target A$2.10
DCF valuation unchanged.