Australia | Aug 27 2007
By Chris Shaw
As part of the takeover of Patrick Corporation that company’s ports businesses were put into the newly listed Asciano (AIO) and the newly-listed company is now dealing with an ACCC move to instigate proceedings against the participants in the Australian auto stevedoring industry.
The action is being taken against a joint venture known as Australian Amalgamated Terminals, of which Asciano holds a 50% stake through the Patrick acquisition. The balance was held by P&O, which is now part of DP World.
According to Austock Securities it is still too early to tell whether there will be any impact on Asciano as a result of the ACCC action, particularly as the JV has been in place for several years but no action was deemed necessary when the Toll Holdings (TOL)/Patrick merger was taking place.
What it does do is create some uncertainty in the broker’s view, as there is the possibility the company may end up being fined or forced to wind up the joint venture. As both Austock and UBS point out, this is not likely to be significant in earnings terms as the auto stevedoring operations only account for an estimates 4-5% of group EBITDA (earnings before interest, tax, depreciation and amortisation).
If a fine were to result Austock suggests the maximum likely is about 1% of EBITDA, which on its estimates of around $734 million in FY08 and $857 million in FY09, means any impact will be small. UBS also points out there is scope for some margin impact from any ACCC ruling.
One possibility suggested by industry insiders is the ACCC attempts to wind-up the joint venture, an outcome Austock suggests would actually be of benefit to the company given it would gain greater control over pricing power at its port facilities.
As a result the broker retains its positive rating on the stock, suggesting the strong earnings growth and attractive yield on offer make the shares attractive at current levels, particularly given the scope for results to beat guidance in FY08.
The broker is currently forecasting earnings per share in FY08 of 12.6c, rising to 21.9c in FY09, while UBS is at 20c and 25c respectively. Thomson One Analytics shows median earnings per share forecasts of 21c and 29c respectively.
Overall the FNArena database shows the stock as rated as Buy twice and Hold three times, of which UBS is one. The average price target on the stock is $11.59, while Thomson One has a median price target of $10.65.
Austock rates the shares a Buy with a target price of $13.35.
Shares in Asciano are slightly weaker despite a stronger overall market today and at 1.10pm were down 3c at $8.97.