With the opening siren (or should that be whistle or horn?) the Motley Fool's ASX World Cup turns its attention to the much anticipated match-up between the kings of rail and road – Aurizon Holdings Ltd (ASX: AZJ) and Transurban Group (ASX: TCL).
Both companies have outstanding track records coming into today's match with returns of 73% and 47% respectively over the past 3.5 years. In comparison the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) is up just 18% over the same timeframe.
Here are some key stats on each company:
| Aurizon | Transurban | |
| Market Cap | $10.3 billion | $14.5 billion |
| Net Debt/ Equity | 36.5% | 139% |
| EBIT margin | 20.3% | 29.6% |
| FY 2015 Yield | 3.8% | 5.1% |
First Half – Defence and Yield
When investors think of infrastructure stocks they usually think defensive and they think yield. In the case of Aurizon, its long-term contracts and conservatively leveraged balance sheet ticks the boxes of defensive, however it must be noted that the company is heavily skewed towards the commodity sector which is famously cyclical.
Transurban's revenue base would appear more defensive than Aurizon's but on the down side its balance sheet is much more aggressively geared.
Turning to yield and Transurban's forecast dividend yield of 5.1% looks a whole lot more appealing than Aurizon's 3.8%, but as we'll discuss during the half time break, the yields are not all that they seem!
No Goals!
Half time re-cap
Its nil all as the teams change ends during the break. The infrastructure giants showed off their defensive qualities, although both showed some flaws. Early on it looked like Transurban was set to score thanks to its higher yield, however on closer inspection investors will note that a low level of franking keeps Aurizon firmly in the contest.
Second Half – Going for Growth
The coaches of both teams know that setting long-term growth plans is essential to the final result.
For Aurizon this has led management to lob a joint takeover bid in conjunction with Boasteel for Aquila Resources Limited (ASX: AQA). A successful acquisition will create an important avenue for future growth into Western Australia for Aurizon.
Goal to Aurizon
Meanwhile according to a report in the Australian Financial Review, Transurban isn't only busy expanding its toll road network in Australia, but it is also interested in "expanding the company's US network by adding tolled lanes to interstate highways near Washington DC."
Although Aurizon's revenues are primarily exposed to commodity volumes not prices, there is no denying that the stock is still exposed to the boom and bust cycle of the resource sector to some degree. Transurban, in comparison, would appear to have a safer growth profile.
Two GOALS to Transurban.
Full Time
Well it looks like everyone's kicked a goal!
It was a contest between two great infrastructure companies today, but the combination of a top-notch offensive growth strategy, coupled with solid defensive play, has seen Transurban finish with a 2-1 win.
