Mine shutdowns and mass layoffs within the coal industry, a longer term outlook for declining demand and sharply lower prices have cast a pall over the industry.
But it has done little to undermine the outlook for infrastructure group Asciano which has hitched much of its projected earnings growth to hauling the hard hydrocarbon.
The ports and rail operator already has gained ground this morning after a market briefing yesterday that, while mildly downgrading expectations for next year, reaffirmed its 30% plus growth in earnings per share for this financial year.
While the majority of the company’s earnings are exposed to a potential downturn in the economy, coal remains a highlight.
Its Pacific National coal haulage business has negotiated attractive long term contracts with an average of 8.1 years with all the contracts on a “take or pay” basis.
Asciano’s terminals and intermodal businesses, however, remain under pressure and facing difficult pricing.
Estimates of already low growth through the terminals were downgraded by management but this was partially offset by a renewed focus on cost cutting and efficiency improvements.
Most brokers downgraded their projected earnings for the company yesterday but many believe that it remains undervalued and recommend it as a buy. The most negative broker is Macquarie which rates it a hold.
Citi this morning reiterated its position, arguing the company was a collection of quality businesses “with strong market positions on clear paths towards stronger returns”.
Asciano is priced at just under 14 times this year’s earnings and 12.1 times next year’s projected profit. Among most analysts, the consensus for earnings per share growth next year is close to 15%.