2021.11.27 03:01 SN_91 Pain
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2021.11.27 03:01 Ciggytardust1 Kiev 60, 50mm f4 Flektagon, Kodak Portra 400 @ 30 minutes.
2021.11.27 03:01 smartbroccoli92 My dog Symba eating at all hours of the night... 🌙
2021.11.27 03:01 sharewithme Word of The Hour: қастер
2021.11.27 03:01 Nevelo Catching the Knife: The Largest Rail-Based Transport Co. in Australia (AZJ)
This is one of a series of posts where I will apply my fast and dirty historical fundamental analysis to some of the biggest dogshit stocks of 2021. If you are interested in the process I use below to evaluate a stock, check out How Do I Buy A Stonk???
Aurizon traces its roots back to Queensland Rail, whom were founded in 1865 when the State government endeavoured to link up the scattered towns along Queensland’s coast. Over the many years of their operations, they established bulk and container transport business. In 2004, these divisions were split off from Queensland Rail under the banner of QR National and was subsequently floated on the ASX on 2010, and rebranded as Aurizon in 2012.
Since then, Aurizon has focused its business to coal & bulk transport only, cutting loose its intermodal container business. It has also expanded its footprint to include major networks the other States like NSW and WA. Aurizon has grown to be the largest rail-based transport businesses in Australia.
Target Buy: $3.72
Looks like a very solid reliable business overall. Probably no surprises here, given its position essentially as a monopoly in its industry. I should note that the growth as neutral in large part because the share buybacks have been able to keep pace with the slight decline in nominal revenue.
The Knife marketindex.com.au
At their all-time high, AZJ broke the $6 mark. In fact, it held around that level quite solidly for most of 2019. However, when the crash in 2020 came along, the floor fell out, and AZJ plummeted like a rock. It hit a multiyear low of $3.38 on the 23rd of March. Interestingly, that price level proved to be quite short lived at the time. Only a few days later, AZJ had popped back up to just under $5.00 and looked bullish going into the middle of that year.
But the last 18 months have not been kind. By Nov of 2021 AZJ had broken its March 2020 low, albeit only just, and is now trading as though the ASX were still deeply in the red, sitting on 4,400 points like it was on the 23rd of March. As of the close of Friday 26th of Nov 2021 @ $3.44, those that bought AZJ at its all time high would be 44% down on the capital of their investment, with the stock now trading in a range that it used to 10 years prior.
The Diagnosis The Short Answer: AZJ really COP’d it.
The Long Answer: It’s actually somewhat interesting trying to pinpoint the issues involved with Aurizon. Overall, the business looks strong. Indeed, they are posting better results than they were in FY19, and with fewer shares outstanding. Genuinely, the ESG concerns are very likely the primary culprit here. With major pressure now for institutions to show their commitment, many previous stalwarts of the Australian stock market have been showing unusual weakness in their share price, often with price levels not seen for a decade.
Looking at the 10-year consolidated figures, one might point to the drop off in nominal revenue, but when considering the per share figures the differences are marginal at best. For example, despite the revenue being nearly $700m less in FY21 than 10-years prior, the relative SPS actually increased due to there being 600m less shares outstanding. The EPS for FY21 of roughly 30cents is well in line with their previous years.
Interestingly, AZJ trades a lot like a bank stock. For example, the 2016 dive was mirrored to a smaller degree by the big 4 banks at the time. That year commodity prices in both the iron and coal sector were bottoming out at decade lows. Long-term prospects looked pretty rough for many operators. Given that 35% of Australia’s exports are from the mining sector, and primarily of these two economies, it makes sense that there were wider scale economic implications. It just so happens that a couple of the biggest drivers of the Australian economy are transported on AZJ’s trains. As such, the company’s prospects are linked to macroeconomic factors more than anything else.
Furthermore, AZJ’s business is essentially a monopoly with long term price contracts. That means predictable and consistent revenues. The main concern is really just about capital management. Add to that AZJ’s many share buybacks over the years, investors otherwise can be relatively confident in maintaining their capital investment (at least on fundamentals sort of level). All of this means that the value of an investment in AZJ rests entirely in its ability to produce reliable profit. In other words, yield. Perhaps yet another reason it trades like a bank stock.
The Outlook Therefore, it would seem quite simple to determine if the future for AZJ is bright or not, but of course nothing is as simple as it seems. Case in point is the current circumstances of its share price. Under ‘normal’ circumstances I think AZJ would be trading quite well right now. But with so much institutional focus now shifting hard toward ESG, it would seem that the big players have their hands full and would rather not get tied up in what is now considered a legacy industry.
This might be seen as somewhat simplistic though. A third of AZJ’s business is in bulk transport (e.g. iron ore) with a further third of its business concentrated in metallurgical coal (i.e. steel production). Even still, its perhaps too big of a hurdle for investment managers to stomach the idea of buying a business of which 68% of the revenue is tied in with the coal industry.
The Future of Coal
Despite all that, the coal industry would seem to be doing quite well.
“Resources & Energy Quarterly Sep 21” – industry.gov.au
Forecasting by the Department of Industry, Science, Energy and Resources in the latest Resources and Energy Quarterly projects coal exports for the next two years to be quite in line with the last decade. Similar forecasting done by the Minerals Council of Australia expects demand globally to increase by about 25% by 2030 in both metallurgical and thermal coal.
How can this be?
Should one be watching the news, the Australian utilities sector is replete with stores about AGL closing down big coal power stations like Liddell in NSW in a couple of years (2023), and Energy Australia bringing forward their closure of Yallourn in VIC by 4 years (2028). For all intents and purposes, the time is ticking on thermal coal. On the metallurgical side of things, Fortescue has made big news announcing major investments in its Fortescue Futures Industries, with the goal of developing green technologies in the refining of iron and production of steel.
“Coal 2020” – iea.org
Well, the trouble is that countries like China and India, along with countries in the developing world, have somewhat different plans in mind. Analysis by the International Energy Agency expects that coal consumption worldwide will remain largely steady into 2025. With Australia exporting nearly half of the worlds coal, there would seem to be quite healthy and ongoing demand for the industry here.
“Boom and Bust 2021” – globalenergymonitor.org
The major reductions in usage by the Western world have been more than offset by increases in Asia. Even with the major retirements of old coal plants in the developed nations, there are more coal plants today than there have ever been. The biggest driver of this by far is China. They have been constructing an unbelievable number of coal power stations in the last 20 years. In 2017 it was reported that globally there were plans for over 1,600 new coal power stations to be constructed in 62 different countries.
Coal Plant Dashboard – globalenergymonitor.org
COP26 endeavoured to address this, but have come away with a fairly weakly worded and nonbinding agreement to “phase coal down,” whatever that means. The thing is, many of currently operating coal plants are quite new. According to research by Global Energy Monitor, the vast majority of the operating plants were built in the last 20 years. The design life of most coal plants is between 40-50 years, which implies that even if the world commits to building no additional coal plants from this point forward, much of the current infrastructure could be in operation for the next 30 years.
How dare you!
Presumably, the coal industry will continue to rake in the money during that time.
Levelized Cost of Energy
There is a further and perhaps less recognized dynamic between the green energy industry and fossil fuels and it relates to the relative costs between them. As investors in AGL well know the utility sector these days is… complicated. Coal, gas, oil, solar, wind, hydro, and nuclear markets do not operate in their own little bubbles. Each are different sources of the same product: electricity. As such, each source is interrelated with the other, because it operates under the larger economic umbrella of the energy market.
“Levelized Cost of Energy Analysis Oct 2021” – lazard.com
Considering the Levelized Cost of Energy (LCOE) can help to clarification the point. Some energy sources may be more cost effective when viewed in terms of $/MWh. Within a market setting then lower costed sources are more competitive, as economies look to lower their costs of energy. This naturally results in higher demands for those sources, at least until the rising demand pushes those costs higher. And as those costs rise, additional energy sources become viable alternatives, which broadens the supply base and ‘levelizes’ costs across all sources.
One might consider then that the profile of energy generation source diversification is a direct manifestation of their relative costs per MWh. And therefore, changes in the underlying costs to produce one source influences the market price of all other sources, as the energy market finds a new levelized equilibrium.
In terms of electricity production globally, Our World in Data indicates that coal accounts for the lions share at about 35% of total production. Keep in mind that much of this is disproportionally in Asian economies.
But what happens when some of the largest economies in the world are actively divesting from certain energy sources like fossil fuels? Or otherwise selectively favouring certain sources (e.g. gas) over others (e.g. coal).
Good news! We’re finding out the answer to that question right now. 😺
This meme writes itself.
Europe in some sense is a Petri dish for the kind of energy market distortion an economy can experience when governments selectively shutdown coal and nuclear generation assets in favour of wind and solar, with only gas as a backup. In a simplistic sense, this has artificially limited the supply of energy sources, perhaps with the intention to raise the levelized cost and make green tech like solar and wind more competitive. The trouble is, those sources have not been capable of supporting the shortfall, and the effort has instead caused an energy crisis in that region. Subsequently, the market has put so much demand on the only other viable option, gas, as to have raised spot prices on that commodity almost 10-fold.
An inconvenient price.
There is perhaps some irony in the fact that as a result of that, the European demand for gas has influenced global supply. To that extent it pushed other economic regions in the world, namely Asia, away from gas and towards other cost-efficient sources like coal. Newcastle coal prices hit an all-time high of $270 USD/t earlier this year, more than double its historical highs, and instigated China to take drastic measures to try to control price. The European energy crisis effectively had spilled over into their backyard. The implication here is that Western economies divesting away from coal may have the contraintuitive result of driving up demand for it globally.
I’m not sure if that was the intended effect, to be honest. 😸
Part of this is the chronic underinvestment in this sector for the last decade and even more difficulty moving forward for companies to secure funding for developmental projects. Personally I would be hesitent to get involved with explorers in these industries, but it would seem that current producers and industry supports like AZJ should have a very solid demand base for the foreseeable future. At least until green technologies can close the gap on energy production and reliability.
The Verdict I think it is clear that the onerous aspect of AZJ’s business, coal transport, should be in high demand at least for the next decade or so. That being said, AZJ recently has taken a major step towards diversifying its business, making it more relevant and resilient in the longer term. I think that is ultimately what makes this company appealing as a long term investment.
One Rail Acquisition
In October, AZJ announced that it had signed an agreement to acquire One Rail Australia and that the $2b+ acquisition would be funded through cash and debt.
Acquisition Investor Presentation
One Rail’s business spans rail, ports, and transportation infrastructure. Its bulk operations include a major rail network that runs from Tarcoola, SA to Darwin, NT, primarily hauling iron ore. It also runs a fleet of locomotives in NSW and QLD, part of its East Coast Rail (ECR), which transport coal in the Hunter Valley region.
AZJ plans to sell the ECR assets once the acquisition is complete, with the intention ideally of recouping a large share of the costs associated with the overall purchase. Otherwise, barring an attractive offer, AZJ has proposed that it could instead demerger and spin it off into its own listed entity, “whichever creates greater value for Aurizon shareholders.”
From historical figures the remaining One Rail network would only really represents a small addition when compared to the larger AZJ business, which did just under $3b in revenue for FY21. Indeed, the ECR portion, which AZJ want to quit, is the more profitable half of the business. This makes the overall price tag of the acquisition merely to gain the non-coal One Rail business seem a bit high.
Acquisition Investor Presentation
However, in the longer term, I think that the network that AZJ gain is a game changer for them. The Central Corridor is ripe with opportunity in the very commodity sectors that are positioned to benefit quite well from the transition towards green technology. The region has development projects in copper, potash, graphite, lithium, and nickel to name a few. AZJ as such would be well positioned to benefit in the medium term through ongoing demand in legacy coal, while in the long-term having an incredible footprint in the future green industry.
The Target Should one be optimistic on the basis of that investment case, it remains to be asked: what is AZJ actually worth?
Interestingly enough, the market didn’t respond very well to the acquisition news. To be sure, the downtrend was established well before AZJ announced their plans, and I think that solely rests with ESG concerns. Yet, one cannot overlook the fact that the immediate effect of AZJ’s announcement was a 10% drop, going from ~$3.90 to ~$3.40 in a matter of days.
Some of that might due to the execution risk of being able to offload ECR in a trade-sale. It’s not at all clear who would want to buy a coal transport business given ESG concerns, which means AZJ would be saddled with the additional debt in the long term.
However, given AZJ historical correlation to bank stocks, I personally think the rerate was much more mechanical, and not indicative of the value of the acquisition itself. But first let’s look at the expected figures.
Note: One of the primary unknowns here is how the acquisition effects shareholder equity. This is not explored in the presentation, so I’ve have opted to presume that the transaction it is roughly breakeven after the additional debt is factored in. Furthermore, uncertainty around the nature of the demerger (whether by trade-sale or separate listing further complicates the ultimate book value of AZJ. Again, I’ve opted to presume that its ends in a separate listing, which would have little effect on debt levels or equity (though AZJ have indicated that 500m of the transaction would be allocated to the new ECR entity).)
Buying AZJ right now is inclusive of later value extracted from ECR, so for valuation I’ll used the combined figures. Thus, using the per share figures above, we get the following:
Fair Price (+ORA) - $4.96
Target Buy (+ORA) - $3.36
AZJ have indicated that they will reduce their dividend from payout ratio 100% to 70% for the next couple of years to enable them to service the additional debt obligations. Naturally, the lower yield will make AZJ less attractive in a relative sense vs other yield-focused investments, like the big 4 banks. Interestingly, my estimated dividend payout post acquisition at the rerated $3.40 share price works out to be a very similar yield as compared to AZJ’s historical average yield at their previous $3.90 price level.
It would seem to me that the market at this stage places AZJ fair value strongly in line with a ~6% dividend yield. As such, the question of bullish or bearish dissolves into one purely of macroeconomic concerns and that of relative yields. What that means for AZJ’s share price into the future, I’m not entirely sure. However, given that the average yield of ASX listed companies since 1980 has been a touch over 4%, it would seem AZJ is a pretty attractive investment if it can continue to pay out at 6%+ yield. At least that is, if one likes dividend stocks.
The TL;DR Initially started as a division of Queensland Rail, Aurizon has historical roots going back 150 years. Split off and listed in 2010, it has grown to become the largest publicly listed railroad company on the ASX, and has claim to be the largest rail-based transport company in Australia.
The share price has taken a beating in the last year. With coal transport representing almost 70% of Aurizon’s business, the major push from institutional investors toward ESG lately have likely led it to be cut loose from major portfolios.
Despite this, coal is projected to be a core part of the global economy for at least the next couple of decades. Additionally, Aurizon has signed a deal to acquire a rail network in the heart of Australia, prime territory for future projects in green tech commodities.
With a foothold established now both in the old and new worlds, Aurizon otherwise looks to be a solid business with a significant economic moat and a high dividend. Thusly, I personally think that this looks like an attractive long-term investment for yield seekers.
As always, thanks for attending my ted talk and fuck off if you think this is advice. 🚀🚀🚀
I'd love to hear other's opinion on AZJ and whether there is potential here that I am not seeing. Also, suggest other dogshit stocks that are/were on the ASX 200 index, and I might put them on the watchlist for a DD in future editions of this series.
On Deck Next Fortnight: RFG
Currently on the Watchlist (no particular order): CGF, IPL, Z1P, FLT, QAN, CWN, FNP, OML, WPL, CIM.
Previous Editions of Catching the Knife:
2021.11.27 03:01 Senderded How exactly did Vaas survive in FC3?
It doesn't seem like it's exactly stated anywhere, and I can't get any good information online.
Pls don't tell me the magic blade resurrected him or some shit.
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2021.11.27 03:01 Basic_W1te_boy First time rolling a blunt. The struggle is real
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2021.11.27 03:01 MugShots LVMPD Traffic Alert
2021.11.27 03:01 sharewithme Word of The Hour: समादर
2021.11.27 03:01 PTfan Looking at starting a reef tank that is 32-40 gallons. Help with stocking please.
My landlord is firm on only having a 10 gallon. But I can have as many 10 gallons as I want in my apartment so I could technically have 100 gallons of water in here.
So personally I’m thinking of getting a 32 gallon-40 gallon(I’d love to swing a 50 but idk lol) biocuve tank and call it a 10 gallon. Please no lectures about how I’m doing the wrong thing. I don’t care. My neighbors have extremely violent dogs they do nothing about and are far more dangerous than any tank.
On to the stocking. I have had two saltwater tanks before so this will be my first ever reef tank. I was wondering if you guys could tell me what some beginners coral would be appropriate at that size and if there was anything in particular you recommend for nano tank beginners.
This is my list in terms of fish and feel free to tell me if this is overstocked or I’ve got two fish that don’t match up etc.
Possum wrasse. 2 clowns. Either a cardinal fish or a fire fish Watchmen goby paired with Tiger pistol shrimp.
Inverts. 2 cleaner shrimp. Emerald crab. Maybe a starfish of some sort and of course snails!
So give me your unbiased and honest opinion
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2021.11.27 03:01 TrendingBot [Mildly Trending] /r/KitchenConfidential - /r/KitchenConfidential: Restaurants and Restaurant Workers (+571 subscribers today; 144% trend score)
2021.11.27 03:01 UserNameTaken4EverHa 1966 Jerusalem Bible?
2021.11.27 03:01 sharewithme Word of The Hour: respecto
2021.11.27 03:01 MonAmiSanglant Does anyone else really not mind the rewrites for Blue/You're Welcome and hate just like... Everything else?
So I've done Heathers twice in my life already at this point, and I'm about to do the show for the third time. Unfortunately, this time it's the full new edition of the book, including I Say No, which is a song that just didn't need to be in the show at all, and the dozen book rewrites and lyric changes that were mostly unnecessary.
Why is the new first verse of Dead Gay Son, the funniest song of the show, not funny anymore? Why is the entire last scene of the show rewritten to add 2 minutes of padded run time with Veronica's weird unnecessary monologue? Why are JD's motivations in his death scene now entirely different? Why did they have to overcomplicate every single song with one or two lyric changes to just make it confusing for anyone who knows the show well? Why did they take Heather Duke's TV spot scene away from her and give it to Ms. Fleming?
I actually agree with the swap of You're Welcome for Blue despite the original song being extremely catchy and fun to perform (and watch, I may add). I'm a survivor of sexual assault and I appreciated the thought process behind the switch. It took a while for me to come around to that song. I get it. I also understand why they added I Will Never Shut Up Again since Heather Duke was a character who needed some kind of motivation and she deserves to be a more fleshed out character.
I Say No is a lazy rehash of musical themes they'd already used with zero connection to the source material of the film. So many of the rewrites, and the author's note in the book, seem focused on making a musical that was a delicate, balanced mixture of camp and sincerity into a full drama, attempting to take out the "black" in "black comedy." I think the reason so many fans of the show fell in love with it in the first place is that it was sort of irreverent and managed to balance that with the beautiful, soft, sincere moments. It suddenly makes the world very real, which I think detracts enormously from what made the show good in the first place- Heathers was surreal and escapist, and we don't need to humanize every moment of the show. It can be camp while still maintaining an understanding of the seriousness of the subject matter.
The rewrites are confusing and seem almost random. So many of them don't seem to have a purpose and seem like they're just there so they can make sure people are following the errata and not trying to do the original version of the show. I haven't been able to find any explanations for any rewrites other than the Blue/You're Welcome swap from the authors. Does anyone have any insight into why some of these changes were made? I'm actually confused, I'm about to start rehearsals for this show for the third time and I'm upset that I'm performing a neutered version of the script.
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2021.11.27 03:01 urmomsangrytoe Facebook marketplace gems..
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2021.11.27 03:01 ahhhh15728 Woman i have known for more than 2 years lied to me about some minor things
Last time we talked she was telling me about her family and showing me pictures one that was clearly edited and the other just straight up taken from the internet, i tried to ask her about the photos, and also did a quick google search of it and found it, and she just kept telling me that things that just dont add up, i really dont know how to feel about that, i cant stop thinking about all the other stuff she might have lied to me until know, specially her age, she looks way too aged for someone her age, so now i dont know if she lies to me constantly
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2021.11.27 03:01 Klxppsin EA servers
I just wanna know why EA servers are so terrible for me it's a constant issue I can't even played fotf without getting disconnected from servers literally every 5 minutes my WiFi is completely fine I don't get it
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2021.11.27 03:01 Blitzindamorning When is Berlin coming back to last gen consoles?
2021.11.27 03:01 smartybrome Free PMBOK Tutorial - PMBOK na Prática - Vamos Planejar: Parte III
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2021.11.27 03:01 sharewithme Word of The Hour: respekto
2021.11.27 03:01 Positive_Growth_1730 Trying to make dodge ball in mc
2021.11.27 03:01 DontEatThatSpecimen Fellow humans with a dark sense of humor and kindness: 25 M hoping to chat.
Ah as the title says I have a dark sense of humor, won’t lead with any examples because I don’t want to off put people just browsing.
I’m finishing up my undergrad currently, studying for to take the MCAT next fall.
I enjoy tv, working out, video games, reading, learning, design, drawing, writing, and more.
Interested? Excellentttttt. Just please be at least 18 or older!
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2021.11.27 03:01 llavem Pink hair is just *chef's kiss* □ IbisPaintX ver. 9.1.3 □ 3 hours
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2021.11.27 03:01 mike_4prez Mw2 custom games
2021.11.27 03:01 tsleb Constantly missing melee strikes since last update
Is this a known issue or something anyone else is experiencing besides my group?
I have 700hrs in Hunt and have never missed as many melee attacks as I have since this last patch, nor have I seen other hunters miss so many melees back. It's like my bayonet has been replaced with a floppy rubber sword that flips out of the way every time I try and hit a human, hive, or dog, and it's getting embarrassing having a knife fight with someone and watching us both twist and flail without even landing a single hit.
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