National rail freight and port operator Asciano (ASX: AIO) has increased its profit guidance for the 2014 financial year despite posting a slight fall in first-half profit.
Statutory profit after tax fell 4.6% to $187.5 million for the six months ended 31 December 2013. However revenue for the group was up 7.3% to $2.007 billion, driven by growth from both PN Coal and Bulk and Automotive Port Services.
Chief Executive John Mullen said that "Good growth continued to be reported by our Bulk and Automotive Port Services and Pacific National Coal divisions, offset to an extent by the performance of Pacific National Rail and Terminals and Logistics that have both been impacted by the persistent weakness in the domestic economy and the volatility of agriculture based rail volumes".
The company now expects low-single digit growth in underlying profit after tax — an improvement from the guidance given by the company in September of flat profit growth. The dividend also increased by 9.5% on the prior period.
Asciano's growth is heavily tied to the economic cycle, demand for coal and domestic agricultural conditions. The company has a narrow economic moat as a result of the oligopolistic market in which it operates in. Prior to the global financial crisis, the company had a reliable and growing earnings profile, however the company was hit hard during the GFC with high debt levels compounding the problem of lower profits. However, a major restructure and capital raising has seen Asciano increase earnings year-on-year for the last four years to $340 million for the year ended FY13.
Foolish takeaway
Asciano is now well placed to capitalise on growth opportunities. Improving domestic economic conditions should result in improved volume growth. Further, the company's focus on lowering operating costs should result in continued margin expansion. The company trades on PE multiple of 16 times.
At the current price, Asciano is a worthwhile addition to the portfolio of growth oriented investors.
