AZJ Details
Divesting Moorebank project: Aurizon Holdings Ltd (ASX: AZJ) signed binding agreement with Qube Holdings Ltd (ASX: QUB) to sell its Moorebank project. The group would be offloading their 33% interest in the Moorebank Intermodal Terminal. AZJ and QUB are part of the Sydney Intermodal Terminal Alliance (SIMTA). The divestment is said to be completed immediately after financial close under the development and operations deed between SIMTA and Moorebank Intermodal Company Ltd. QUB has particularly reported that the acquisition entails AZJ’s 33% stake in Industrial Property Trust (MIPT) owning 83ha freehold land at Moorebank, coupled with AZJ’s interests in development of the rail terminals and related warehousing under the 99-year lease agreements across the entire 243ha Moorebank area. Thus, the above transaction would bring QUB’s ownership of MIPT and the Moorebank project to 100%. Qube is paying over $98.9 million which is a premium of about 4% to the pre-transaction carrying value of MIPT’s freehold property. Investors were pleased with this acquisition, and accordingly the stock rose over 39.8% in the last six months (as of August 03, 2016).
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Financial Highlights (Source: Company Reports)
Market headwinds and impairments: Aurizon Holdings reported that they would incur an impairment of $73 million (pre-tax) for their Aquila investment during FY2016 accounts preparation. Moreover, the group would incur a further $29 million (pre-tax) in rolling stock impairments which would be recognized on the back of national fleet requirements to meet the potential demand. The group’s ongoing transformation initiatives is also weighing on its performance. Overall, the group would incur an overall fleet impairment for FY2016 to $177 million (pre-tax) which represents ~6% of the written down value. The group already incurred over $426 million (pre-tax) which was included during first half of 2016. As a result, the group would incur overall impairments of $528 million (pre-tax) for fiscal year of 2016. Moreover, management reported a challenging and volatile market which is impacting their target client’s growth prospects. Given the challenging coal market, the group could further be under pressure. The sale of stake in Moorebank logistics hub may give AZJ another A$100 million to be used for share buybacks. However, earning challenges with subdued coal market outlook is weighing over AZJ.
Further, the heavy rally has placed the stock at higher levels, which is now trading at unreasonable P/E. We recommend investors to book their profits in the stock as we give a “Sell” at the current price of $5.05
AZJ Daily Chart (Source: Thomson Reuters)
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