Aurizon Holdings Ltd (ASX: AZJ) released its FY 18 half year results today. Here are the key highlights:
- Statutory profit was $281 million, up 52% from the previous period which had a $156 million impairment write down
- Management's headline benchmark, underlying earnings before interest and tax (EBIT) was $485 million, down 5% from the previous period
- An interim dividend of 14 cents (50% franked) was declared (which is 100% of the underlying profit)
- Free cash flow from continuing operating activities was down by 11% to $345 million which reflected the sale of the Moorebank terminal
- Management maintained their FY 2018 guidance for underlying EBIT in the range of $900 million – $960 million
- Management's commentary was (as expected) quite scathing about the Queensland Competition Authority (QCA) draft decision to allow Aurizon to earn up to $3.9 billion from its networks business between July 2017 and June 2021. This is almost $1 billion less than what Aurizon was expecting to earn.
Overall, it was a solid but not particularly exciting set of results. The key take away is obviously the QCA's decision could have a significant impact on Aurizon going forward. Its attractiveness as a business is its moat / competitive advantage which could be affected by future competition authority reviews. The coal and freight haulage market is concentrated with few large operators and high barriers to entry. This makes it difficult for new entrants to enter the market and protects Aurizon's future earnings. Customer contracts also tend to have a long duration which further protects Aurizon's revenue.
Shareholders will be pleased to see that management have also put a focus on reducing non-growth capital expenditure which is a big part of the business and profits are being returned to shareholders in the form of dividends and share buy backs.
The Aurizon share price was up 3% in early trade today.
Overall, I think Aurizon is a solid business with a strong competitive advantage that could secure dividends for shareholders. It's not on my buy list for now however as I'm looking for stocks with better growth prospects.
