UBS Investment Research
Key Call: Asciano Limited
March quarter expected to be weak
Volume weakness in Mar-qtr no reason to change forecasts
Asciano should be releasing March quarter volume statistics next week and we
expect weather impacts on coal and economic weakness in the cyclical divisions to
lead to volumes declines across most of the group. We do not expect to change our
forecasts (FY11 EBIT A$540m) due to strong cost-out momentum in Container
Ports and take or pay mechanisms in Coal Rail. However, ongoing volume
weakness into the Jun-qtr and industrial action could result in some revisions.
Coal exports now back to growth mode
East coast coal industry exports were +10% in March, after being -23% in January
and February due to Queensland weather. These weather issues together with
shorter average haul lengths in the Hunter Valley are likely to cause Asciano?s
Coal Rail division to report NTK declines of c.5%. However, take or pay
mechanisms on Queensland contracts will insulate divisional EBIT.
Cyclical divisions sluggish to weak
Container stevedoring industry volumes have continued to be sluggish with Marqtr
likely to show +3%, similar to Dec-qtr but substantially lower than +13% for
Sep-qtr. Exposure to lower growth shipping lines and the threat of industrial action
is likely to see Asciano?s growth at lower than industry causing marketshare to
remain at c.45% until mid year when contract wins are expected. Intermodal Rail is
also expected to be flat to slightly down due to macro and competitive pressures.
Valuation: A$2.00
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