Company Overview: Qube Holdings Limited (ASX: QUB) provides comprehensive logistics solutions across multiple aspects of the import-export supply chain. The company operates through two divisions, i.e., the operating division and the property division.  The operating division includes Logistics and Infrastructure, Ports and Bulk, Patrick and Associates (ex-Patrick), while the property division includes Beveridge operations. The company started to trade on ASX in 2007.

QUB Details

Focus on Diversification to Aid Future Business Growth: The company is engaged in diversifying its business by asset, location and customer nationwide. The fact is evident by the top 10 Logistics & Infrastructure customers, which represented around 10.6% of its operating division’s total revenue. In addition, the top 10 Ports & Bulk customers equate to around 19.0% of the operating division’s total revenue. The company believes that it is in a decent position to navigate any emerging inflationary pressures from contractual protections, ongoing productivity initiatives to increase efficiency and reduce costs, and pro-active engagement with customers to review their broader logistics supply chain requirements. During 1HFY22, the company’s logistics and infrastructure division, delivered high volumes in most parts of the business, which mainly includes container-related activities, including transport and empty container parks, machinery, steel and general cargo and iron ore and other bulk commodities, including copper, nickel, zinc, and lithium. The strong result in 1HFY22 indicates the robust and resilient nature of its diversification strategy.

Insights of 1HFY22: During 1HFY22, the company recorded a growth of 16.9% in underlying earnings (NPATA) to $96.8 million despite ongoing impacts from COVID, global supply chain disruptions and some industrial relations challenges. The company closed the half in a strong financial position with cash and available undrawn debt facilities of ~$1.8 billion as of 31 December 2021.

Financial Summary (Source: Analysis by Kalkine Group)

Business Updates: The below picture gives an overview of the key business updates:

Business Updated (Source: Analysis by Kalkine Group)

Buyback of Shares: The following picture provides an overview of the recent buyback announced by the company:

Buyback Overview (Source: Analysis by Kalkine Group)

Top 10 Shareholders: The top 10 shareholders together form around 36.34% of the total shareholding, while the top 4 constitute the maximum holding. Challenger Managed Investments Ltd. and Greencape Capital Pty. Ltd. are holding a maximum stake in the company at ~7.67% and ~6.05%, respectively, as also highlighted in the chart below:

Top 10 Shareholders (Source: Analysis by Kalkine Group)

Key Metrics: During 1HFY22, the company recorded a current ratio of 1.61x against 1.38x in 1HFY21. On the leverage side, the debt-to-equity ratio for the period stood at 0.52x as compared to 0.66x in 1HFY21.

Liquidity & Leverage Profile (Source: Analysis by Kalkine Group)

Key Risks:

• Economic and Market Conditions: The company’s revenue and earnings could be impacted by numerous factors, including global and domestic economic conditions as well as the rising competition in its core markets.
• Supply Chain Issues: QUB’s operational and financial performance could be impacted by the ongoing supply chain issues.
• Regulatory Risk: The company is exposed to a more complex regulatory environment; any failure in compliance could lead the business to fines, penalties, etc.

Outlook: The company is optimistic about decent underlying earnings growth from the operating division in FY22 on the back of continued strength in the container and agri activities as well as the recent commencement of the BlueScope contract. In addition, the company anticipates solid volumes to continue across most ports’ activities and bulk commodities. Looking forward, the company expects a strong underlying earnings contribution from Patrick. The company is expecting capital expenditure for 2HFY22 in the range of ~$300 million to ~$400 million. Overall, the company seems to be a bit positive about the future business as it anticipates strong underlying earnings growth in both NPATA and EPSA in FY22 against FY21. With respect to the property division, the company expects breakeven underlying results in the near future.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of QUB is trading near its 52-week low level of $2.69, offering a decent opportunity for accumulation. The stock has been corrected by ~9.22% in the past month. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit (in percentage terms). The company might trade at a slight discount to its peers’ average multiple, considering the COVID-19 uncertainties and supply chain risk, etc. For the purpose of valuation, few peers like Aurizon Holdings Ltd (ASX: AZJ), Kelsian Group Ltd (ASX: KLS), Dalrymple Bay Infrastructure Ltd (ASX: DBI) and others have been considered. Hence, considering the expected upside in valuation, rising topline and bottom line, focus on diversification, optimistic long-term outlook, and current trading levels, we recommend a ‘Buy’ rating on the stock at the closing price of $2.71, down by ~2.867% as on 09 May 2022.

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

QUB Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine and its related entities do not hold interests in any of the securities or other financial products covered on the Kalkine website unless those persons comply with certain safeguards, procedures, and disclosures.

Kalkine Media Pty Ltd, an affiliate of Kalkine Pty Ltd, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.