Brokers Expect Asciano To Lower Earnings Guidance

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            [1] => ((AIO))
            [2] => ((BXB))
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This story features BRAMBLES LIMITED.
For more info SHARE ANALYSIS: BXB
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Chris Shaw

Since its split from Toll Holdings ((TOL)) rail and port infrastructure company Asciano ((AIO)) has not provided the market with much in terms of updates on the state of its operations as the group’s 4.1% stake in Brambles ((BXB)) and possible intention to make a takeover offer for that company has dominated the news.

This should be set right next month when the company holds an investor briefing but the news is unlikely to be all good for shareholders as brokers anticipate a downward revision to the earnings guidance offered in the company’s demerger scheme booklet.

Cuts of 5-6% are anticipated, Merrill Lynch suggesting much of the shortfall in earnings will be on the back of weaker grain volumes and the impact this will have on revenue for the rail division.

UBS agrees, noting while a slightly stronger than expected level of activity in the ports division is offsetting this to some extent grain volumes remain an issue and are likely to prompt a restructuring of its grain haulage operations.

While now expecting grain to record a loss of around $20 million in EBITDA terms (down from break-even previously) GSJB Were points out coal freight volumes are down as well, so the broker has cut its EBITDA (earnings before interest, tax, depreciation and amortisation) forecast by around 6%, while its EPS (earnings per share) forecast for FY08 has been cut 20% to 13c, while UBS is forecasting 9c.

Merrill Lynch points out the lower rail contribution is already in its forecasts, as in EBITDA terms it is forecasting $684 million compared to market consensus of $712 million.

While downgrades are unlikely to prove positive for sentiment the broker retains its positive view on the stock, as it points out even allowing for cuts to consensus estimates the stock is on an attractive EV/EBITDA multiple of just over 12x, especially given the solid growth expected in the rail and ports divisions over the medium-term.

Again UBS agrees and retains its Buy rating, though with a reduced DCF valuation of $9.50, down from $10.10 previously. GSJB Were rates the company as Hold, though it sees some scope for a short-term bounce in the stock as in its view the trading update will show existing business growth remains solid enough to justify a slightly higher multiple.

Likely to prevent the stock from trading all the way up to broker valuations is the company’s 4.1% stake in Brambles ((BXB)), Merrill Lynch suggesting the best outcome for shareholders would be for it to give up on the idea of launching a takeover and selling its stake as there are no obvious natural fits between the two businesses and the takeover talk is putting pressure on the share price.

UBS suggests the sale of the Brambles stake would be a positive for both earnings and the share price, so it would also take a positive view on any disposal plan.

Overall the FNArena database shows a positive sentiment towards the company as Asciano shares are rated as Buy five times and Hold twice, with an average price target of $10.11, down from $10.35 last week. This compares to a median price target according to Thomson One Analytics of $9.75.

Shares in Asciano today are weaker and as at 12.00pm were down 14c at $7.46.

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