What: Shares of rail freight operator, Aurizon Holdings Ltd (ASX: AZJ), today jumped as much as 4.6% on the back of a strong full year profit result.
In the 12 months to 30 June 2015, Aurizon reported an underlying EBIT (earnings before interest and tax) of $970 million, up 14% on the prior corresponding period.
Aurizon's underlying result deviates from the 109% increase in reported statutory EBIT because it excludes the asset impairments and voluntary redundancy costs incurred in the prior period.
So what: Aurizon's impressive result came about thanks to its focus on costs and efficiencies. Indeed, year over year, haulage volumes and revenue were both mostly flat (down 1%).
"Over the past two years we've delivered cumulative transformation benefits valued at more than a quarter of a billion dollars, as committed to the market", Aurizon's Managing Director and CEO, Lance Hockridge said.
The group's operating ratio, which shows the operating costs as a percentage revenues, successfully fell below the target of 75%, to 74.3%, and achieved a return on invested capital of 9.7%.
Pleasingly, the board resolved to declare a final dividend of 13.9 cents per share, up from 8.5 cents per share a year earlier. Payable on 28 September 2015, the full year distribution of 24 cents per share takes the group's payout ratio to 85%.
Further, given its outlook for a reduction in capital expenditure, continuing operational improvements and investment decisions regarding growth projects, the board increased Aurizon's payout ratio range to between 70% and 100% of annual net profits. This means, the board now has the ability to increase its annual dividend even if profits don't grow very quickly.
Is it time to buy shares?
Looking ahead, Aurizon is targeting more cost reductions and efficiencies, but has noted its revenue will be impacted in the coming year due to a number of factors.
While Aurizon has a favourable market position in the Australian resources sector, it must be said that its customers may not be in the strong financial position which they recently were, given the sharp fall in major commodity prices.
Indeed, although its dividend may increase in the near future, I'd say Aurizon shares are fairly valued at today's prices given the company's subdued growth outlook.
