Qube Holdings Ltd (ASX: QUB) shares are up 10% this year and are 198% higher over five years, versus just 2% and 26% respectively for the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO), however it remains one of the least talked about stocks on the ASX- what's the story?
What or who is Qube?
Unlike some of the sexier, consumer-facing companies listed on the ASX like Flight Centre Travel Group Ltd (ASX: FLT) or AMP Limited (ASX: AMP), Qube operates in the background but provides an essential service to many of Australia's major companies.
Qube is, in fact, Australia's largest provider of import and export logistics services. The group operates two divisions; the Ports & Bulk division, which has diversified operations from Port Hedland in the west through to Port Kembla in the east and deals in everything from iron ore to cars; and the Logistics division, which has strategically located facilities in all capital city ports and provides road and rail container transport, customs and quarantine services, container parks, intermodal terminals, warehousing and international freight forwarding.
Why buy Qube shares?
Qube's position as the main operator of supply chain management for containerised and bulk products coming into and out of Australia makes it a leveraged play on Australian business, however that's not the whole story.
Qube and its main rival, Asciano Ltd (ASX: AIO), operate in an extremely fragmented industry that's undergoing an important consolidation phase. As Australia is forced to become more competitive on a global scale, integrated logistics systems will become more important for both importers and exporters as transport efficiency is prioritised to reduce cost to market. This plays into Qube's strengths and will aid the company when acquiring smaller businesses in the years ahead.
The Silver Bullet
Qube also holds two strategic parcels of land. It owns 67% and 100% respectively of two pieces of land adjacent to the Southern Sydney Freight Line. Qube has proposed the development of inland rail terminals on the sites with the aid of the federal-government-owned Moorebank Intermodal Company.
Earlier in 2015, Qube entered into conditional contracts for the Moorebank Intermodal Terminal Project, which will become Australia's largest intermodal precinct and a key part of consolidating Qube's position as the dominant east coast import and export logistics company.
Should you buy Qube?
Despite the significant capital investment required over the next few years and the recent earnings warning from the company, analysts still expect that Qube will generate compound earnings per share growth of between 5% and 10% in the years ahead. In a similar way to how the market was assessing Crown Resorts Ltd (ASX: CWN) in 2014, Qube is being priced on future potential more than current performance.
Trading on a price to earnings ratio of 23.5 and dividend yield of just over 2%, investors need to question whether other logistics companies, like Brambles Limited (ASX: BXB) or Asciano, represent better value at current prices.
