Australia | Oct 16 2012
By Eva Brocklehurst
Qube Logistics ((QUB)) has become Australia's one-stop shop in moving bulky goods such that Deutsche Bank has initiated coverage with a recommended Buy.
The broker was attracted to the company's work on improving container freight efficiencies and what it called mine-to-ship solutions. Whether it be loading iron ore in Port Hedland, Western Australia, or motor vehicles and machinery in Port Kembla, NSW, Qube handles the whole logistical chain in-house, with port facilities in all capitals. It transports the mined goods, stores them and then lifts them onto ships for export. It also does the reverse, supplying automotive, bulk and general stevedoring and warehousing.
The momentum has continued since the listed investment vehicle, KFM Diversified Infrastructure and Investment, was corporatised in 2011 and joined the ASX official list as Qube. KFM joined the ASX in 2007 as an investment fund, having originated from P&O Steam and P&O Ports, acquired by a consortium led by Kaplan Equity. P&O and Patrick, now part of Asciano ((AIO)), have been the two players dominating stevedoring in Australia since forever.
Of note, Qube is building a massive inland terminal at Moorebank in south western Sydney. Qube owns 66.7% of the Moorebank Industrial Property Trust with QR National ((QRN)) owning the remainder. The Department of Defence is a tenant on the site, where it has storage facilities, and has recently renewed its option to lease for a further five years (from March 2013). The site is being re-developed to accommodate up to one million containers per year with rail links to the interstate network and Port Botany. This project is not included in Deutsche's base case, however, it could potentially add 8c per share to the broker's discounted cash flow valuation of $1.83 a share and elevate proportionate earnings by up to $80m once fully developed (2015).
Of the others covering the stock in the FNArena database, Credit Suisse also has Qube as a Buy while three brokers have the stock as a Hold (UBS, Macquarie and JP Morgan). Credit Suisse was a little cautious regarding the news Defence would hang on at Moorebank for another five years, seeing it as a further potential delay to the intermodal terminal development. Nevertheless, the news was not considered material to Qube earnings forecasts. Macquarie trimmed earnings forecasts a little after the FY12 results and it considers the stock fully valued. Consensus earnings per share growth forecasts show 8.5c for FY13 (from a slight loss in FY12) and 9.6c for FY14 and the dividend forecast is 4.6c (up 12.7%) and 5.4c (up 16%) for those years respectively. Deutsche notes the company's developments present upside to forecasts and its initial price target is $1.75 a share against consensus of $1.71. Deutsche expects solid earnings to continue in FY13, supported by recent acquisitions.
The one major downside risk to the stock, as Deutsche sees it, is reduced demand for bulk shipping i.e. a slowdown in Australia's mine output and, hence, the wider economy. There's also the usual constraints of developing assets as well as industrial action from the historically fractious wharves. However, Qube has spread its interests while maintaining cohesion. It is also in joint venture with Kawasaki Australia in K-Line Auto-Logistics which in turn is in joint venture with Toll ((TOL)) on PrixCar, an automotive storage processing and rectification specialist. This gives Qube a 25% interest in PrixCar
Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.
