Aurizon Finance Pty Ltd (Baa1/BBB+) is taking expressions of interest for a 7.5-year Senior Unsecured fixed rate bond with price guidance of +225-230bps area, which is a fixed coupon of approx. 6.4-6.45%.
IAM sees this as an opportunity for investors to gain access to an investment grade corporate deal at appealing investment returns, with solid underlying financial fundamentals and in a market sector pivotal to the Australian economy.
The expected return for an investment grade rated corporate is compelling and provides investors who are heavily weighted towards financials the opportunity to diversify their portfolio.
Aurizon Finance Pty Ltd is the financing arm of Aurizon Holdings (AZJ) the ASX-listed rail and freight company with a market capitalization of A$7.215bn (as at 20-Feb-24).
Aurizon is a leading specialist in the services of rail design, engineering, construction, management and maintenance, and offers large-scale supply chain solutions to a diverse range of customers, it transports more than 250 million tonnes of commodities, connecting miners, primary producers, and manufacturing industry with international and domestic markets. The company also provides customers with integrated freight and logistics solutions across an extensive national rail and road network. In addition, it also owns and operates one of the world’s largest coal rail networks, linking approximately 50 mines with three major ports in Queensland (Source: Bloomberg).
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Aurizon Finance Pty Ltd is investment grade rated at the senior unsecured capital structure level at Baa1 Moody’s and BBB+ Fitch. They are also frequent issuers in the $A bond market with solid support from domestic and offshore trading banks in secondary trading which provides ample liquidity in post raise trading markets.
Aurizon reported a strong 1H24 result that was supported by the increase in allowable revenue at the network business and increased above rail volumes across coal, network and bulk as the combination of wet weather, mining production issues and labour shortages that plagues the pcp improved. This saw EBITDA up 26% on the pcp to AUD847M and despite the sharp lift in both finance costs and tax, net profit increased 40% (underlying) to AUD237M.
After recording total capex of AUD427M in 1H24, the group’s FY forecast remains unchanged at AUD850-960m. Equity liked the result today (equity +3.2%) on a combination of sound earnings delivery and management comments that the lift in cash generation would provide “flexibility” for AZJ to increase shareholder returns from FY25, which could be in the form of dividends or share buybacks. (Source: Westpac)
For more information contact Income Asset Management.
