Qube Warns of Subdued Growth in 2016; Fair Value Estimate Remains Unchanged

Qube Holdings issued a trading update in which it downgraded earnings guidance for the ports and bulk division, stating underlying earnings for fiscal 2016 will be lower than fiscal 2015. This is largely driven by the completion of several contracts during fiscal 2015, including the Yara contract at Dampier and project work at Roy Hill. Qube expects these factors to be partly offset by the new contracts secured in fiscal 2015, and the full-year contribution of acquisitions and growth capital expenditure. We have reduced our 2016 and 2017 earnings estimates by 6% and 4% respectively, however, our fair value estimate remains broadly unchanged at AUD 2.80 per share. The current share price is trading at a slight discount to fair value, reflecting investor uncertainty about the depth and duration of the slowdown in logistics and bulk handling. Potential positive catalysts may include value-adding acquisitions, an improvement in domestic economic conditions, or a renewed focus on the attractive economics of Moorebank. We maintain our narrow economic moat and medium fair value uncertainty ratings. Qube has established an integrated ports and logistics services business with national scale.