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Mid-Cap

Two stocks that plunged - Aurizon and Sandfire Resources

August 15, 2016 | Team Kalkine
Two stocks that plunged - Aurizon and Sandfire Resources

Aurizon Holdings Ltd



AZJ Details
  • Weak results dragged the stock lower: Aurizon Holdings Ltd (ASX: AZJ) stock fell over 6% on August 15, 2016 as the group came out with the weaker results. The group generated a 10% fall in underlying Earnings before Interest and Tax (EBIT) to $871 million for the full year ended 30 June 2016, against prior corresponding year. But, this result was on track with the group’s guidance range of $845 - $885 million and we believe investors were rather with an aggressive expectation on the group. Revenue fell 9% to $3.5 billion, due to Redbank sale impact in FY15 coupled with $180 million reduction in freight revenue. Freight revenue was affected by a 9% fall in volumes, a $70 million reduction in payments from the Transport Services Contract, and disposal of CRT ($38m). As a result, the statutory Net Profit After Tax (NPAT) fell 88% to $72 million due to earlier asset impairments ($528 million pre-tax), including $226 million related to the investment in Aquila, $177 million on rolling stock and $125 million on strategic projects. On the other hand, the group generated over $131 million in transformation benefits in FY16, and is targeting further $250 million by FY18. Moreover, the operating ratio for the year was 74.8% against 73.0% target. Return on Invested Capital (ROIC) fell 1.1 ppt to 8.6%. The group’s free cash flow (FCF) improved by 35% to $478 million, due to fall in capital expenditure and better capital allocation.
  • Recommendation: We put a “EXPENSIVE” recommendation on the stock at the current price of $4.70
 
Sandfire Resources NL



SFR Details
  • Copper prices volatility could hurt the stock performance: Sandfire Resources NL (ASX: SFR) stock fell over 6.6% on August 15, 2016. We believe that the pressure in the stock would continue in the coming months given the commodity price volatility. Moreover, being a mid-cap stock, the group may not be able to withstand the volatility in the copper prices like its giant peers which would continue to hurt the stock performance.
  • Recommendation: We remain bearish on the stock and give an “Expensive” recommendation at the current price of $5.38
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The information given by Kalkine Pty Ltd ABN34 154 808 312 (Australian Financial Services License Number 425376) on this website is general information or advice only.

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