Australian Transport FY15Previews:Self help still driving 2H15

Entering into the results season with mixed expectations — Overall, we see the2H15 results as another mixed reporting season with several different themesthroughout the sector. The common theme will however remain the delivery of costefficiency, as this is expected to remain the key for earnings performance in the half.Otherwise the focus is on 1) increased expectations for airlines due to positiveoperating environment, 2) economic improvement in US for Brambles coupled withincreased competition in RPCs, 3) slowing coal volume growth and steady containervolumes but pressure for businesses exposed to resource construction and iron ore,and 4) the improving value proposition for Transurban’s toll roads.

    Guidance for FY16 is more a focus — Many companies have already providedrecent trading updates (QUB) or 4Q volume levels (AZJ, TCL), or recentlyreaffirmed guidance (BXB). Consequently, given some volatility in 2H15 earnings,the FY16 outlook will be important for what management can control (predominatelycosts) and what they cannot control (non-contracted revenue growth). We expectearnings guidance from Brambles, coal tonnage expectations from Aurizon,distribution guidance from Transurban, revenue growth range from Recall, divisionalgrowth expectations from Qube, and no specific guidance from Qantas.

    Still waiting for the underlying recovery — The businesses exposed to differentsectors of the economy are waiting for the underlying volume recovery, withincreased returns a function of cost savings. The key question is whether these canbe extended. We think Aurizon’s new labour agreements offer some increasedscope for savings, but potentially within their target of >30% EBIT margin by 2020.

    Summary — We see upside risk to expectations for Qantas, limited surprise forQube, solid results from Transurban, Aurizon and Brambles, and Recall share priceleveraged to the IRM share price. We are Restricted on Asciano.

    Order of preference — Qantas is our preferred pick in the sector, followed byQube, Transurban, Aurizon, Brambles, Virgin and Recall.