# AZJ - Aurizon Holdings



## System (6 December 2012)

Aurizon Holdings Limited (AZJ) was formerly known as QR National Limited (QRN).

Previous discussion of this company can be found in the QRN thread: https://www.aussiestockforums.com/forums/showthread.php?t=20608


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## piggybank (23 December 2013)




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## piggybank (23 January 2014)

Time 4 an update:-


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## ROE (6 February 2014)

Shorting this baby on fundamental same reason I short CBA at $79.
All the good news factor in but this business has free cash flow issues so when it turn it will be bad...


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## VSntchr (14 February 2014)

That's an interesting move ROE. Do you mind sharing a bit more insight into what provoked such a trade?

Looking at the latest report I note that in 2013 FCF was +$16m, 2012 -$228m...

I havent looked further back and I haven't done any forward looking analysis, but I note that Bradken had a bad report last week which may not bode well for some of the freight companies...


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## ROE (14 February 2014)

Rail Road is an extremely costly asset to maintain, their earning is usually a mirage, not saying they manipulate the

book or bad management at all, what they do is all good but things are not always what they seem. They can’t keep up the good cash flow for long, the day will come when they need to pump in heap of cash to maintain the network...

 Page 71 of Annual report on Depreciation:
it tell you that it depreciate thing in a straight line.
what does this mean, they take their asset at cost value and depreciate
without account for inflation and other things that make replacement much more costly down the track

 say they build a rail 10 years ago at cost of $1000
they depreciate that $1000 from the book ...ten years later when they come
to replace it, it may cost $1500 or $2000 ...so the money they book on depreciation is lower than the actual capital they put in the future..

 so as time goes on, they pump more money in to get the same return
and if they don’t have the cash, they have to borrow (debt keep growing) or
share holder pump in more cash...hence low return on equity business...

 The current share price is just crazy, they factor in all the extremely good scenario there is no margin for error.

 All the analyst love it, everyone recommend buy...Monday report should be good
.... I sell short but that is just me, I could be totally wrong and I am going against Buffett buying Rail Road


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## VSntchr (14 February 2014)

Interesting.
I am doing some further reading now....

I have noticed that the bulk of their fleet is approaching 20 years old. They are talking about reducing the fleet over the next few years (it seems due to efficiency and size improvements of newer trains), perhaps this is one of their ways of dealing with the CF problem


To give credence to what your saying , I read a broker report from CIMB placing a "warning" on TOL stating that it is based on a recovery of the Aus economy and the current price reflects a perfect scenario...


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## ROE (14 February 2014)

VSntchr said:


> Interesting.
> I am doing some further reading now....
> 
> I have noticed that the bulk of their fleet is approaching 20 years old. They are talking about reducing the fleet over the next few years (it seems due to efficiency and size improvements of newer trains), perhaps this is one of their ways of dealing with the CF problem
> ...




on top of that when the time is good and you move a lot of goods around fix cost is not an issue but when thing slow this business has high fix cost, they cant just close down some rail line, all the maintenance need to be carry out for them to ship good from A to B ..for the similar cost they earn less on the down size like airlines

Market price this one too generously I reckon...


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## ROE (17 February 2014)

I like it already 

www.afr.com/p/business/companies/aurizon_profit_falls_pc_as_it_scales_lut1rjjSGD0525RRDasgVO


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## Wysiwyg (17 February 2014)

ROE said:


> I like it already
> 
> www.afr.com/p/business/companies/aurizon_profit_falls_pc_as_it_scales_lut1rjjSGD0525RRDasgVO




Interesting the share priced powered to an all time high of $5,255. I agree with your fundamental view about a capital intensive business but the company is making room for growth by greatly expanding export capability and increasing business efficiency. I think the lower AUD/USD would be an advantage while demand fluctuation will always be.


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## ROE (17 February 2014)

Wysiwyg said:


> Interesting the share priced powered to an all time high of $5,255. I agree with your fundamental view about a capital intensive business but the company is making room for growth by greatly expanding export capability and increasing business efficiency. I think the lower AUD/USD would be an advantage while demand fluctuation will always be.




They only manage to rack up earning by massive cost cutting, there is so much you can do with cost cutting
once they are done with it...reality bites 

their debt steadily increase, cant pay this sort of dividend and not rack up debt..
it is not possible for this type of business to pay out a good chunk of dividend...you either has to borrow
or cost cut because you sure as day light spend a lot on your rail and carts


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## ROE (20 March 2014)

have the tide turn yet any charter 
I have 6 figure short on this baby and it been a sea-saw just get interested payment on short position


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## VSntchr (20 March 2014)

ROE said:


> have the tide turn yet any charter
> I have 6 figure short on this baby and it been a sea-saw just get interested payment on short position




That's a nice conviction position ROE.
If you don't mind me asking, what platform are you shorting with?


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## skc (20 March 2014)

ROE said:


> have the tide turn yet any charter
> I have 6 figure short on this baby and it been a sea-saw just get interested payment on short position




Well, support in the current zone between $5 to $5.10. No real conviction either way based on the chart.

A strong break below $5 is the bear sign, but there's little reason to bet that should happen on chart alone.


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## VSntchr (20 March 2014)

skc said:


> Well, support in the current zone between $5 to $5.10. No real conviction either way based on the chart.
> 
> A strong break below $5 is the bear sign, but there's little reason to bet that should happen on chart alone.




If your referring to my comment SKC, I meant that ROE has conviction...rather than a reference to the SP trend lol


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## ROE (20 March 2014)

VSntchr said:


> That's a nice conviction position ROE.
> If you don't mind me asking, what platform are you shorting with?




I am using comsec ASX CFDs, collect interest on short (RBA rate) and pay on Long also pay any dividend  on short position.

I mainly short using CFDs not really use for anything else cos I find it easier ....


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## skc (20 March 2014)

VSntchr said:


> If your referring to my comment SKC, I meant that ROE has conviction...rather than a reference to the SP trend lol




Haha. No I was not referring to your comment. It is purely coincidental that my word of the day is also "conviction".


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## ROE (20 March 2014)

conviction is good ok, use it often


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## ROE (5 May 2014)

I like it for the short ...Getting hubris... heavy capex business paying a premium to expand into commodity cynical business awesome combo


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## VSntchr (5 May 2014)

Interesting activity. The chinese company is taking the bulk of the deal but AZJ still a pretty sizable 15% chunk..


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## ROE (5 May 2014)

VSntchr said:


> Interesting activity. The chinese company is taking the bulk of the deal but AZJ still a pretty sizable 15% chunk..




I want more of these deal done come on you can do anything AZJ


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## Huskar (5 May 2014)

A write up by Intelligent Investor Funds on the short side as well ROE:

http://www.iifunds.com.au/bristlemouth/trouble-aurizon


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## ROE (5 May 2014)

Huskar said:


> A write up by Intelligent Investor Funds on the short side as well ROE:
> 
> http://www.iifunds.com.au/bristlemouth/trouble-aurizon




Thanks for the link, good to see someone else seeing it that way too...

I already know about take or pay contracts and miners is struggling, they due to re-negotiate for a massive price reduction when the take or pay contract is up...

that is if the miners can hang on to the loss that long and don't goes belly up.

Various article pop up on AFR regarding this issues every so often ...

disc: I still have my short open on this baby


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## Wysiwyg (5 May 2014)

Exporting coal from Queensland since early 70's so been through many highs and lows. Large expenditure on new port infrastructure did not happen on a whim. Demand rises and falls. Demand is lower at present and good to see a share price correction.


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## ROE (6 May 2014)

http://www.afr.com/p/business/companies/wesfarmers_drops_coal_contract_prices_NhVnecp7Gc8uHIabuLvhEI


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## skc (10 June 2014)

ROE said:


> Thanks for the link, good to see someone else seeing it that way too...
> 
> *I already know about take or pay contracts and miners is struggling*, they due to re-negotiate for a massive price reduction when the take or pay contract is up...
> 
> that is if the miners can hang on to the loss that long and don't goes belly up.




AIO tackling the issue with some talks... will be interesting to see where this end up.

http://www.afr.com/p/business/companies/asciano_willing_to_talk_contracts_tJQupMM4DyfNb87Ys6XfVK



> The chief executive of rail operator Asciano says he is willing to talk to coal miners about changing the terms of their rail contracts as they battle to cut costs and keep their mines from slipping further into the red.
> 
> Asciano chief John Mullen said the company has held “positive and fruitful discussions with a number of important customers” about the take-or-pay contracts, which are proving a millstone around the necks of miners battling dramatically lower coal prices.


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## skc (29 September 2014)

ROE said:


> I already know about take or pay contracts and miners is struggling, they due to re-negotiate for a massive price reduction when the take or pay contract is up...
> 
> that is if the miners can hang on to the loss that long and don't goes belly up.
> 
> ...




Are you still holding the short. It's running beautifully for you at the moment.

BND went belly up last week citing AZJ's obligation as one o fhte reasons.

And here's an AFR article on some of AZJ's issues...

http://www.afr.com/p/business/companies/cold_feet_over_aurizon_big_plans_zMKiDxPKjPzWqJfeDfJgTJ



> Aurizon pitched the Aquila deal to investors as an opportunity to participate in the development of port and rail infrastructure in the Pilbara. But with iron ore prices now falling, Aurizon and Baosteel’s acquisition appears poorly timed.
> 
> When they made their bid in May, iron ore was trading at around $US105 a tonne.






> Some investors think it is folly to proceed with the $5 billion Galilee development, even though the initial plans for 500 kilometres of new rail track have been scaled back to 300 kilometres, when coalminers such as Queensland’s Bandanna Energy are collapsing. (Bandanna filed for administration last week.) Indeed Aurizon, which has also spent some $900 million building rail infrastructure at Queensland’s new Wiggins Island Coal Export Terminal, warned earlier this year that weaker demand for coal did not justify proposals for further rail expansion.




May be AIO is the other good short candidate along the same logic. However it does have a lot more non-coal/resource related earnings.


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## Huskar (29 January 2015)

The short not running quite so well now. The thing seems to be that the only way you can really get out of these 10yr take or pay contracts is by going insolvent. Until then AZJ keeps clipping the ticket.
I think the market was expecting worse numbers in terms of rail volumes - the numbers are still up significantly on a few years ago despite fair drop from last year. 
You have to wonder why there has been very little response by the market to the now greater direct exposure AZJ has to iron ore..


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## skc (23 December 2015)

Huskar said:


> The short not running quite so well now. The thing seems to be that the only way you can really get out of these 10yr take or pay contracts is by going insolvent. Until then AZJ keeps clipping the ticket.
> I think the market was expecting worse numbers in terms of rail volumes - the numbers are still up significantly on a few years ago despite fair drop from last year.
> You have to wonder why there has been very little response by the market to the now greater direct exposure AZJ has to iron ore..




What a nice Xmas present delivered by AZJ to its shareholders. I have wondered for some time how AZJ trades so high when most of its customers are in dire straits. Actually I do know - it's because there's a bidding war out there for AIO. It's also because people seem to ignore the fact that AZJ cannot be taken over due to an ownership cap.

Now AZJ is finally showing the first sign of crack. Revenue is falling faster than cost cutting. Company has to run very fast just to stand still. There's a limit to cost cutting, but there is plenty of scope for revenue to keep falling. AZJ can run the assets more efficiently, but it can't re-deploy any surplus asset resulting from the efficiency gains. The numbers can get quite bad in a hurry imo.

This is a great example of how difficult it is to hold a "strategic short". The share price printed a new all time high just earlier this month.


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## VSntchr (24 December 2015)

skc said:


> What a nice Xmas present delivered by AZJ to its shareholders. I have wondered for some time how AZJ trades so high when most of its customers are in dire straits. Actually I do know - it's because there's a bidding war out there for AIO. It's also because people seem to ignore the fact that AZJ cannot be taken over due to an ownership cap.
> Now AZJ is finally showing the first sign of crack. Revenue is falling faster than cost cutting. Company has to run very fast just to stand still. There's a limit to cost cutting, but there is plenty of scope for revenue to keep falling. AZJ can run the assets more efficiently, but it can't re-deploy any surplus asset resulting from the efficiency gains. The numbers can get quite bad in a hurry imo.
> *This is a great example of how difficult it is to hold a "strategic short". The share price printed a new all time high just earlier this month.*



*
*
Great post. 
I remember ROE going short on this one, and despite agreeing with him on the trade thesis, I have been thinking how many times I would have folded if it was me!
I hope he's still holding on!

So can you figure out how exactly the CEO can say "the reasons are essentially one off"?
I hardly see a slowing down of volumes as a "one off", especially when they guide to H2 volumes being more uncertain than in previous years!!!

If he is referring to the impairment - then yes the ~$220m impairment is likely to be a one off...err perhaps until the pilbara project gets reviewed in February and we see another chop to the balance sheet?


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## skc (24 December 2015)

VSntchr said:


> [/B]
> Great post.
> I remember ROE going short on this one, and despite agreeing with him on the trade thesis, I have been thinking how many times I would have folded if it was me!
> I hope he's still holding on!
> ...




Yes... it sure feels like BS. And why did he choose to lose credibility for spinning $hit like that? 

AZJ can't be blamed for the commodity cycle. It is a high fixed cost business with huge operational leverage. If anything management has done a pretty decent job on the cost front to fend off a massive receding tide for as long as it has. There was no need to spin it, especially given that they couldn't be sure on guidance next half.

Re: strategic short... I have decided that one should only hold strategic shorts if you are being paid a salary to hold a short using other people's money. In the case of AZJ I would have folded a few times too.


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## Quant (8 June 2017)

" Coal exports slid by $2.5 billion in April due to Queensland floods "

Got to be some earnings revisions coming here


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## skc (8 June 2017)

Quant said:


> " Coal exports slid by $2.5 billion in April due to Queensland floods "
> 
> Got to be some earnings revisions coming here




The impact from the cyclone has already been announced on 18 April.


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## Quant (8 June 2017)

skc said:


> The impact from the cyclone has already been announced on 18 April.



I was thinking more along the lines of broker downgrades  ,  trend of revisions  . I 'm seeing plenty of downside risk medium term .


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## skc (8 June 2017)

Quant said:


> I was thinking more along the lines of broker downgrades  ,  trend of revisions  . I 'm seeing plenty of downside risk medium term .




The announcement was made 6 weeks ago. There was a string of downgrades when it happened. The coal export data you quoted doesn't contain any new information. 

AZJ may rise or fall but it's not (or shouldn't be) because of this information.


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## Quant (8 June 2017)

Well we will have to agree to disagree on this one , 2017 earnings consensus is still trending down after the initial revisions on that april 18 release . 2018 is trending down as well

Looking forwards


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## peter2 (17 February 2019)

Definitely not a growth stock, but the chart looks promising. Price has bounced off a recent low and is now looking likely to go higher with the bullish market. I'd be happy to get a quickish +1R to +2R on AZJ.


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## peter2 (20 September 2019)

Since my last post AZJ didn't disappoint. Price eventually took off all the way to $6. Since then price has  remained in a tight sideways consolidation. It looks likely to break-out to new all time highs again.


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## Dona Ferentes (6 August 2021)

Some commentary. (probably not a ASF stock, but it has a Market Cap of more than $7 billion)

_Broker consensus views : 4 Strong Buy, 3 Moderate Buy, 2 Hold_

*Ally Selby (Livewire Markets):* _Next up we have Aurizon Holdings, which  is Australian largest rail freight operator with a nice dividend yield  of around 7 per cent. Neil, I will stay on you. Is it a buy, hold or sell?_

*Neil Margolis (Merlon Capital):* That is a buy for us. I mean, it has been out of favour because they do  haul coal, and China is trying not to buy coal at the moment. And coal  has also got some environmental issues. I would note 70 per cent of   their coal is met coal, not thermal coal, which is used to make steel   alongside iron ore. And they have got a monopoly rail track, which is   quite low risk. And they have got very manageable debt levels and they   generate fantastic cash flow, which is why Warren Buffet always liked   railroads. So, it is a buy for us.

*Ally Selby **(Livewire Markets)*: _As you mentioned there, coal has not been the flavour of the month, or the year for that matter, with the Aurizon price suffering as a result. Don  over to you. Is it a buy, hold or sell?_

*Don Hamson (Plato):* It is a buy from us too, because we do think the price is too cheap. Way  too cheap. It has been affected by the sentiment on coal. Agree with  Neil, it is a good solid business. Great cashflow, great yield. So yeah,  it is a buy from us. And you are seeing coal prices come back very  strongly. So we like Aurizon.


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## peter2 (6 August 2021)

It's a buy from me also. Price tried to rally after the Covid selloff but this was snuffed out by the negative sentiment for coal. Price has finally broken through the bearish sloping resistance line and there's been a series of higher lows. It's a buy from me on the BO>3.90, but it's not a short term trade opportunity because the price generally doesn't go very far (in % terms). 

If *AZJ* has an acceptable yield and the divs are reliable, at this price there looks to be some capital gain as well.


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## finicky (28 April 2022)

Greg Canavan's Investment Advisory picked this as a buy last night with an estimated value of 4.40 on expected FY22 earnings, 4.60 on FY23. Has a 'Coal Train' angle on it as a way to benefit from coal resurgence. 
Not buying myself but does strike me as defensive despite debt?
Chart looks ok, although I'd be wary of a possible pullback on the daily. Maybe towards the 50dma which is crossing the 200dma - just a superficial take.


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## Ann (28 April 2022)

finicky said:


> Greg Canavan's Investment Advisory picked this as a buy last night with an estimated value of 4.40 on expected FY22 earnings, 4.60 on FY23. Has a 'Coal Train' angle on it as a way to benefit from coal resurgence.
> Not buying myself but does strike me as defensive despite debt?
> Chart looks ok, although I'd be wary of a possible pullback on the daily. Maybe towards the 50dma which is crossing the 200dma - just a superficial take.





This is interesting finicky, AZJ is finally travelling above its long term falling trendline from 2019 and also above its 200dmas. The 50dma is just about to cross above the 200dma which is also a very positive sign. Like you, I agree its fortunes are tied to the price of coal. 

I waited until after it cleared its long term falling trendline which also coincided with the rise above the 200dmas and hopped in at 3.71







Big, sexy coal trains, awesome!


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