In early trade this morning, shares of railway owner and operator Aurizon Holdings Ltd (ASX: AZJ) are up 1% following the release of its half-yearly report.
In the six months to 31 December 2014, Aurizon reported flat revenues but a huge jump in net profit, year on year, following a transformation program and the incursion of a wrath of write-offs and redundancy costs in 2014.
Here are 10 key takeaways from today's announcement:
- NPAT was up 188% to $308 million
- EBIT were up 15% to $423 million
- Zero impairment losses, versus $197 million in the prior period
- Operating ratio (expenses as a percentage of revenues – the lower the better) of 75.3%, down from 78.4%
- Return on invested capital moved positively from 8.6% to 9.4%
- Unfranked dividends of 10.1 cents per share, up 26% on the prior period (the dividend will be paid on 23 March 2015)
- The company announced the next stage of structural reform of corporate support functions. At its privatisation in 2010 Aurizon had 9,390 employees, there are now just under 7,000 working for the company – a reduction of 25.4%.
- Coal volumes were down 1% whilst iron ore volumes were also down 14% year on year.
- Gearing increased to 30.7%, from 27.9%
- Earnings per share of 14.4 cents, up from 12.3 cents year on year
Commenting on the results, Managing Director and CEO Lance Hockridge said, "In this subdued, low-growth economic environment, we've been relentless on cost reduction and productivity improvement. Our transformation program is helping us achieve solid earnings growth when overall market demand and revenue are relatively flat."
Should you Buy, Hold, or Sell?
As we've noted before, Aurizon could be facing a very tough couple of years. A recent joint venture decision to acquire Aquila Resources (an iron miner and infrastructure owner), coupled with a backdrop of falling coal and iron ore prices is reason for investors to reassess their weighting in the stock.
Today's results do appear excellent – especially the 26% jump in dividends per share. However, investors would be wise to consider the outlook, cost-cutting ability and valuation of Aurizon shares prior to making a purchase. Indeed with a P/E ratio over 17 times and a price to book ratio (which shows the relationship between the price you pay and the accountants' value of its assets) of 1.68 times, it's simply too expensive to justify a buy rating today.
