In today’s daily we have covered stock research on Toll Holdings (Expensive).

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S&P 500 was up 1.30points or 0.07%on Wednesday and closed at 1974.62. The Dow Jones industrial average fell short of the 17,000 milestone, despite adding modest gains a day ahead of the highly anticipated June payrolls report. U.S. companies added 281,000 workers to their payrolls in June, figures from the ADP Research Institute showed today, before the Labor Department’s monthly job’s report tomorrow. 

Sterling’s strong run continued on solid data on UK construction activity last month continued to fuel expectations that the Bank of England will raise rates later this year. The Australian Dollar slid 0.6% to $0.9436 after trade data showed the nation’s exports declining 5% in May compared with April. The CBOE Vix volatility index, Wall Street’s fear gauge fell below 11 as it headed back towards a recent seven year low.


Dow Jones Daily Chart (Source – Thomson Reuters)
 
S&P ASX 200was up by 79.5points or 1.48%on Wednesday and closed at 5455.40 points. Sirtex Medical (SRX) announced that its dose sales for SIR-Spheres for targeted radiation therapy of liver cancer grew by 27.1% for quarter ended 30th June 2014. Global Resources Corporation (GRM) announced that it has secured additional tenements in Western Australia which are highly prospective for sulphate of potash. Transurban Group (TCL) has reached financial close on the acquisition of Queensland motorways.
 
APN Funds Managementthe responsible entity for Generation Healthcare REIT has announced that its 50% owned joint venture entity has entered into series of contracts with Healthscope regarding Frankston Private. Woodside Petroleum has announced that Toro-1 located in Western Australia’s Exmouth sub-basin has intersected approximately 150 metres of gross gas. Iron ore rose 0.53 per cent to $US94.70 according to the Steel Index. Crude oil fell about $US1 on Wednesday on encouraging signs for supply from Libya and Iraq. Copper rose to its highest in more than four months on the latest US jobs data. Non-profit institutions contributed close to $55 billion to Australia's economy in 2012-13, an increase of $22 billion in original terms on 2006-07 as measured by gross value added, according to figures released today by the Australian Bureau of Statistics (ABS). 


 ASX 200 Daily Chart (Source – Thomson Reuters)

The top gainers on ASX 200 were:- 


Stock of the Day – Toll Holdings (TOL)
 
Toll Holdings is the largest integrated transport company in Australia. Toll also operates a number of regional and global transport related businesses based in Asia. Toll’s business is currently segmented into six divisions comprising Global Resources, Global Logistics, Global Forwarding, Global Express, Domestic Forwarding and Specialized & Domestic Freight.


Toll Business Segments (Source – Company Reports)

Over the past four years, Toll has experienced a decline in return on capital employed from 10% to 7% and an associated 11% decline in earnings per share. The performance reflects: a decline in the profitability of its Australian divisions and the investment of capital in offshore expansion initiatives that have generated sub investment grade returns. In our view some of Toll’s earnings declines are structural and we remain cautious on its ability to regain profitability levels in Australia.


Toll Freight Volumes (Source – Company Reports)

In Australia, TOL is clearly the market leader from a volume perspective in both the domestic express and contract logistics/supply chain markets. This positions it well from a forwarding perspective. The Australian business is the core revenue and earnings generator for the group, contributing we estimate 76% of revenue and 78% of earnings. Toll has what appears to be a strong global network. Toll’s global footprint appears vast, yet our analysis suggests that despite this, Toll does not have critical scale in any market with the exception of Australia and importantly has only limited scale in the most important markets of Asia – Pacific including China.



TOL Daily Chart (Source – Thomson Reuters)

Toll’s advantage is clearly with respect to imported Asian based manufacturing into Australia. Toll has established specific warehouses for both Nike and Adidas and manages the supply chain into Australia and then both B2B and B2C deliveries. The issue as Toll highlights it is that many global manufacturing companies have global forwarding contracts and as such despite Toll’s footprint precludes Toll from these types of contract. We believe the stock is expensive at its current price and would review the stock at a later date.

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