##{"id":60223,"date":"2012-07-09T15:11:00","date_gmt":"2012-07-09T05:11:00","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2012\/07\/09\/too-much-priced-in-too-early-for-qube\/"},"modified":"2012-07-09T15:11:00","modified_gmt":"2012-07-09T05:11:00","slug":"too-much-priced-in-too-early-for-qube","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2012\/07\/09\/too-much-priced-in-too-early-for-qube\/","title":{"rendered":"Too Much Priced In Too Early For Qube"},"content":{"rendered":"

\n\t – Qube<\/span> Logistics is one of Australia's largest integrated logistics companies
\n\t – Morgan Stanley initiates with an Underweight rating
\n\t – Longer-term the company is well placed to deliver solid growth
\n\t – Broker suggests the risk is too much upside is priced into the stock too early<\/strong><\/p>\n

\n\tBy Chris Shaw<\/p>\n

\n\tQube<\/span> Logistics ((QUB<\/span>)) is one of Australia's largest integrated providers of import and export logistics services and has operations at all capital city ports in the country. Over the past five years Qube's<\/span> market capitalisation<\/span> has increased from around $200 million to about $1.5 billion, driven primarily by acquisitions. <\/p>\n

\n\tThe company has three main divisions – Ports and Bulks, making up just over half of all operating assets, Landside<\/span> Logistics at around one-quarter of operating assets and Strategic Assets. Among the strategic assets are a 67% interest in a property in Moorebank<\/span> and 100% of a property in Minto<\/span>.<\/p>\n

\n\tManagement is led by chairman Chris Corrigan<\/span>, who has extensive ports experience given his former work with Patrick Stevedores, which was taken over by Toll Holdings ((TOL<\/span>)) in 2006. Much of the management team previously worked at Patrick. <\/p>\n

\n\tMorgan Stanley has initiated coverage on Qube<\/span> with an Underweight rating within an In-Line industry view. While cyclically and structurally Qube<\/span> is in the sweet spot of its growth cycle and there is both quality management in place and a solid long-term strategy, Morgan Stanley remains cautious on pricing in too much upside too early.<\/p>\n

\n\tThe market is doing this to some extent with the stockbroker noting its numbers imply a 40% earnings premium to peers in FY13<\/span> and a 30% premium out as far as FY15<\/span>. Morgan Stanley's earnings per share (EPS) forecasts stand at 7c<\/span> this year and 9c<\/span> in FY13<\/span>, which compares to consensus EPS estimates in the FNArena<\/span> database of 7.4c and 8.5c respectively.<\/p>\n

\n\tWith respect to its forecasts, Morgan Stanley notes Qube<\/span> is likely to be a beneficiary of the migration of container movements from road to rail. Longer-term, the broker suggests rail volumes could grow by around 16% annually over more than 10 years if the New South Wales government's rail target of 28% of container movements is achieved by FY20<\/span>.<\/p>\n

\n\tOne issue is the future of the Moorebank<\/span> site, as the federal government has decided to proceed with developing an intermodal<\/span> terminal. Further clarity around participants in the development remain as much as 12 months away, while Morgan Stanley notes there is still uncertainty as to what role Qube<\/span> could play in the project.<\/p>\n

\n\tAssuming a share of 24% by FY20<\/span> and Qube<\/span> not developing the Moorebank<\/span> Intermodal<\/span> Terminal but redeploying<\/span> the existing site at book value generates a base case valuation and price target for Qube<\/span> of $1.45 per share. The base case scenario also factors in margin improvement at Landside<\/span> Logistics and further accretive acquisitions in the Ports and Bulk businesses.<\/p>\n

\n\tFactoring in more optimistic assumptions generates a bull case valuation of $1.93, which Morgan Stanley notes is above existing price targets for Qube<\/span>. The broker's bear case valuation is $0.89. The FNArena<\/span> database shows targets for Qube<\/span> range from UBS at $1.60 to Credit Suisse at $1.90, with a consensus target of $1.71. <\/p>\n

\n\tPeer relative valuations with respect to Qube<\/span> is a stumbling block for the investment case in the view of Morgan Stanley, as the broker argues there is better value elsewhere. While offering slightly lower capitalised<\/span> annual growth in earnings for FY12-FY15<\/span> both Asciano<\/span> ((AIO<\/span>)) and Brambles ((BXB<\/span>)) are trading on lower earnings multiples and consequently offer better investment value. Supporting this view is Morgan Stanley's assessment both offer better earnings visibility in coming years.<\/p>\n

\n\tThe market seems to agree there is better value elsewhere, as while Qube<\/span> is rated as Buy once and Hold three times by brokers in the FNArena<\/span> database to cover the stock, its Sentiment Indicator reading of 0.3 compares to Asciano<\/span> at 0.9 and Brambles at 0.7. <\/p>\n

\n\tThere are some potential positives for Qube<\/span>, as Morgan Stanley suggests the market would view positively further accretive acquisitions, additional meaningful contract wins and news Qube<\/span> was moving forward with the Moorebank<\/span> site.<\/p>\n

\n\tBut with the market pricing in further positives despite some uncertainty with respect to delivery, Morgan Stanley feels justified in rating the stock as Underweight.<\/p>\n

\n\tShares in Qube<\/span> today are down slightly in a weaker market and as at 12.40pm the stock was 1c<\/span> lower at $1.525. This compares to a range over the past year of $1.205 to $1.79, the current share price implying upside of around 12% to the consensus price target in the FNArena<\/span> database.
\n\t
\n\tFind out why FNArena subscribers like the service so much: "Your Feedback (Thank You)<\/a>" – Warning this story contains unashamedly positive feedback on the service provided.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"