Ferret's Stock to Watch: PATRICK CORPORATION 07:54, Tuesday, 11...

Ferret's Stock to Watch: PATRICK CORPORATION
07:54, Tuesday, 11 January 2005


A COMPANY SORTING OUT ROAD AND RAIL LINKS TO AND FROM PORTS


Sydney - Tuesday - January 11: (RWE)
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OVERVIEW
********

The chief of Patrick Corporation Chris Corrigan is a tenacious
person and one who never gives up.

If he thinks he is right there are no holds barred as was shown
in the waterside confrontation which changed the maritime industry
dramatically and helped many businesses improve profitability, especially
his own company Patrick Corporation.

The significant speedup on the wharves though, has caused swifter
movement of cargoes in and out of ports.

Patrick has instigated a major $400m capital expenditure program
as a part of its ports upgrade.

This involves:

* Construction of a new 30 ha terminal in Brisbane to be fully
operational mid 2005. This will include the introduction of 16 of PRK's
Autostrads.

* Substantial modifications to Port Botany, resulting in a
doubling of capacity at a cost of $137m.

This includes new postpanama cranes, capable of handling the new
panamax container ships, redesign of road/rail exchange and expansion of
its Autostrad.

Completion is expected in the second half of 2006.

In addition, PRK is planning a further expansion of Melbourne,
increasing capacity from 740,000 teu to 2m teu, conditional on a
deepening of channels to allow access for post-panamax vessels.

PRK is also adding 12 new straddle units by June 2005.

In the case of Sydney's Port Botany it also means getting the
roads and transport links right.

Patrick is not getting sufficient support from the NSW government
to get the projects running smoothly between road, rail and the wharves.

Meanwhile container rates are likely to rise although growth is
predicted to be around 8 per cent in the longer term.

In the rail and linehaul sector further revenue and profit growth
is expected, due to:

* Autocare: Further growth will be limited by the current record
levels and concerns on rising interest rates. With further
productivity improvements, a move from road to rail and the port
improvements, profit and margin growth are expected.

* Shipping services: continued competition is expected from the
Toll Marine, with a 25 per cent increase in capacity and the
expanded service by the Tasmania Government owned TT Line and ANL,
limiting profit recovery in 2005.

* Rail: Continued revenue growth is expected in 2005, with full
inclusion of Freight Australia and the full realisation of
synergies, and possibly boosted by some recovery in rural volumes and
continued growth in intermodal.

Continued improvement in margins is expected with further volume
growth and a continued focus on costs.

While the longer term opportunities for rail are considerable,
improvements in infrastructure are required to realise these
improvements.

With 7 separate track owners and a multitude of regulators this
will be a gradual process at best.

Air - Virgin Blue which is 46 per cent owned, expect a weaker
March half with an uncertain revenue environment, due to competition and
resulting lower load factors
and yield pressures.

VBA is changing its frequency of operation on key routes and
route optimisation, including the introduction of new services to key
holiday destinations in Australia, such as Byron Bay, Hervey Bay, Broome.

The expanded services to key holiday destinations in Australia,
New Zealand, Fiji, Vanuatu and Cook Islands (from 3/05) will benefits
from the switch of holiday travel from some Asian destinations.

On the cost side, higher fuel costs and airport related costs
will offset continued reduction in other costs, including fleet
ownership (ownership v leasing).

The strong full year profit report at the high end of
expectations has been driven by a solid increase in port operations and a
strong contribution from Pacific National.

While growth is expected to continue at similar rates in the
2005, with a favourable outlook across all ports and rail, despite an
uncertain outlook for Virgin Blue, the recent price strength and current
significant valuation premium will limit upside.

Shaw Stockbroking says it maintains a Buy recommendation but
prefers to BUY on weakness.

SHARE PRICE MOVEMENTS
**********************

Shares of Patrick Corporation yesterday gained 23c to $6.79 and
posted a year high of $6.83 during the session. Rolling low for the the
year was $4.67.

Dividend is 18c to yield 2.66 per cent. Ferret wrote the stock up
on May 21 when the price was $4.97.

Last year net profit rose 24.1 per cent to $188.4 million for
the 12 months to September 30, 2004.

Earnings per shares (adjusted) rose 24 per cent tp 34.4c a share.

It excluded a one-off gain of $26.8m, mostly related to the
revaluation of Virgin Blue post float.

The final dividend was increased by 2¢ to 7¢ fully franked.

The result was at the high end of expectations, comprising:

* A 27 per cent increase in operating profit for the wholly
owned port operations on the back of 8 per cent container volume growth
and increasing productivity.

The warehouse and distribution group increased contribution, with
expansion in related volume.

* A 26 per cent increase in linehaul activities, dominated by a
36 per cent increase from Pacific National and an improved result from
Autocare.

This was partially offset by a weak result from shipping, due to
excess capacity and intense competition.

• A 4 per cent decline in contribution from Virgin Blue, with
increased competition and rising fuel costs.

With the recent reset note issue and profit growth, the Balance
Sheet remains strong, providing a base for expansion and
acquisition.

Twenty per cent growth expected in 2005
***************************************

Shaw Stockbroking is predicting continued growth in 2005 above 20
per cent.

The firm suggests the key drivers will be:

* Continued growth in port operations, with further volume
increases of 8 per cent and further productivity gains, and further
expanding logistics. In future years, these operations are expected to
benefit from a major capital expenditure and expansion program.

* A flat result from Virgin Blue, with increased capacity offset
by the impact of increasing fuel costs and competitive pressures.

* Continued growth in Pacific National, with continued efficiency
improvements and a recovery in rural volume and the expected
acquisition of Freight Australia.

The broking firm says the longer term outlook is compelling,
resulting in our continual long term outperform recommendation,
the recent price strength has moved the valuation premium closer to its
expected target, based on the growth record and outlook.

"We would prefer to BUY on any weakness with a 12 month target of
over $7.21, Shaw Stockbroking recommends.

BACKGROUND
**********

Patrick has built an integrated network of freight logistics
operations that deliver seamless and efficient transport solutions across
all modes - rail, road, sea and air.

The company has significantly expanded our capacity to provide
fast and reliable distribution of cargo by the recent acquisitions of a
50% stake in rail operator, Pacific National, and Virgin Blue airline.

Principal operations are:

* Patrick is Australia's largest operator of container terminals,
with state-of-the-art facilities in all major ports. We lead the way in
productivity, reliability, technology and work practices.

* It is Australia's largest stevedore, with origins dating back
to 1919. Our mission is to provide the most reliable, technologically
advanced and cost effective stevedoring service in the market.

* Patrick Port Services offers a complete range of land-based
services to shipping lines, freight forwarding agents, customs brokers,
importers and exporters.

* Formerly Patrick Rail, the Portlink division is the link
between Patrick's road, rail and stevedoring services. Its function is to
manage the movement of import and export consignments between the wharf,
container parks and inland terminals.

* Patrick Shipping offers two dedicated cargo services, one
between Tasmania and Melbourne and the other between Fremantle and
Darwin, calling into remote ports of Western Australia.

* Patrick Autocare offers an integrated service of processing,
storage and distribution of motor vehicles. We have on-wharf processing
facilities in Sydney, Melbourne, Fremantle, Brisbane and Adelaide; no
other company in Australia can match our scope of services and locations.

* Patrick Intermodal leads the Australian market in providing a
full range of logistic and supply chain solutions including integrated
transport, warehousing and distribution to a number of different market
segments. Patrick has invested and continues to invest in businesses that
complement each other in an uninterrupted chain of total transport and
storage logistics.

* Patrick Defence Logistics provides logistics support services
to the Defence sector as well as commercial and government organisations
with specialist project management requirements. The company is are
committed to deliver cost-effective, value-added services that leverage
our management and coordination expertise with our network of first-class
suppliers.

* Patrick International Freight services Australian importers and
exporters. Part of Patrick Corporation, we offer Export Freight
Forwarding, Consolidation, Import Forwarding, Customs Clearance and
tailored International Supply Chain Services.

* The Patrick International Freight global network extends to
over 200 cities and ports across the world.

* Patrick Air Services is the international cargo handling
business of Patrick Corporation. We are the only independent ground
handling company in Australia that can offer a full range of services in
all major transport hubs, with facilities in Sydney, Melbourne, Brisbane,
Perth, Adelaide, Darwin and Cairns.

* Patrick links Tasmania to Australia and the rest of the world
through an extensive network of offices and agencies. We offer fast and
reliable transport of any type of freight, from full container and
trailer loads, hazardous cargo and refrigerated goods, to express and
general services.

* Patrick's consistent investment in technology has positioned
the company as the world leader in container handling systems.

* Patrick Technology has developed ground-breaking IT and
communications systems to support the extensive network of Patrick
Corporation's freight logistics operations.

* Project Services specialises in project management and
execution of moving difficult, oversize, overweight, dangerous and
seemingly impossible cargo.

Our main capabilities include turnkey logistics management,
engineering consultancy, design assistance, equipment erection, ultra
heavy haulage, skidding, ship and barge operation, ballast engineering
and hazardous cargo.

ENDS

Copyright © 2005 RWE Australian Business News. All rights reserved.

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I don't hold PRK