Moorebank TEU Volume Rise And Diversification Will Strengthen Future Performance

Key Takeaways

• Diversification across markets and geographies ensures revenue stability and growth potential, mitigating risks from underperforming segments.
  
• Forest and energy business expansion, alongside new terminal operations, and productivity initiatives in Ports & Bulk, boosts revenue and earnings potential.
  
• Persistent challenges across automotive and ports sectors, along with economic and financial pressures, could adversely impact Qube Holdings' revenue growth and profitability.

Catalysts

Provides logistics solutions for import and export supply chain in Australia, New Zealand, and Southeast Asia.

• The expected increase in TEU volume at the IMEX terminal at Moorebank, driven by new customers and the relocation of the Minto operations, could contribute to future revenue growth.
  
• The continued strength and expansion in Qube's Forestry and Energy businesses, including growth from renewables and scope expansion with existing customers, is anticipated to positively impact earnings.
  
• The diversification strategy across markets and geographies, including strong performance in the agricultural sector, enhances revenue stability and potential growth even if one market underperforms.
  
• The expected unwinding of grain trading-related working capital in the second half, along with significant cash receipts from bulk grain shipments, could improve cash flow and boost earnings.
  
• Commitment to margin improvement, as demonstrated by productivity initiatives in the Ports & Bulk division, should support higher net margins moving forward.

Qube Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Qube Holdings's revenue will grow by 8.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.9% today to 7.2% in 3 years time.
• Analysts expect earnings to reach A$349.2 million (and earnings per share of A$0.2) by about April 2028, up from A$222.9 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as A$292.3 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 27.6x on those 2028 earnings, down from 30.4x today. This future PE is greater than the current PE for the AU Infrastructure industry at 23.5x.
• Analysts expect the number of shares outstanding to grow by 0.09% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.38%, as per the Simply Wall St company report.

Qube Holdings Future Earnings Per Share Growth

Risks

• Negative growth in the automotive market and flat performance from Patrick's could negatively impact revenue growth if these conditions persist.
  
• Start-up losses at the Moorebank Interstate Terminal and delays in securing volumes there could pressure earnings if these issues aren't resolved swiftly.
  
• Industrial actions have had a negative impact on the automotive and ports sectors, potentially leading to disruptions in operations and affecting margins.
  
• Increased net finance costs and higher debt balances, along with rising interest rates, could reduce net margins and impact profitability.
  
• Potential geopolitical and economic challenges could adversely influence overall financial performance, affecting both revenue stability and net earnings.

Valuation

• The analysts have a consensus price target of A$4.263 for Qube Holdings based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$4.65, and the most bearish reporting a price target of just A$3.7.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$4.8 billion, earnings will come to A$349.2 million, and it would be trading on a PE ratio of 27.6x, assuming you use a discount rate of 8.4%.
• Given the current share price of A$3.83, the analyst price target of A$4.26 is 10.2% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.