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AZJ - Aurizon Holdings

ROE

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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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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...
 

ROE

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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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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...
 

ROE

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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...
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...
 

Wysiwyg

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ROE

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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
 

ROE

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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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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?
 

skc

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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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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
 

ROE

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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 ....
 

skc

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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".
 

ROE

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

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