Although we don’t have a current Algo Engine short signal in AZJ, we remain cautious of the 100% payout ratio the company continues to maintain.
Investors should look at the short side with a stop loss above the $5.23 high.
AZJ reported its FY17 EBIT of $836m and guided towards FY18 EBIT growth of 8 – 11% or $900 – 960m.
Losses in both Intermodal and bulk divisions were higher than market expectations. Dividends were reduced to $0.225 for the year but this was offset by the company announcing a $300 million share buy back.
We feel FY18 EPS growth may be optimistic and the reduced dividend is something we’ve been flagging as a potential concern coming into this result.
Assuming dividends remain flat over the next 12 months, it places AZJ on a forward yield of 4.4%.
AZJ has recognised an A$526m impairment to its Bulk assets, and continues its Inter-modal review.
AZJ noted continues to face challenging market conditions and we feel investor sentiment will be negative leading into the FY17 results on 14 August 2017.
AZJ has previously guided towards FY17 EBIT within A$800-850m range.
Regular viewers of the ASX top 50 video market report, will recognise AZJ as a stock we’ve been warning about, in 2017. Our concern relates to the sustainability of the high dividend payout ratio and the probability of the company being forced to announce a cut at the August result.
AZJ reported FY16 EBIT of $870 (down 10%). AZJ has a challenging outlook on the revenue front (9% decline to $3.45b) and their 100% payout ratio means that dividends are likely to be cut in the near future. The company remains focused on cost cutting and $130m in savings were achieved in the past 12 months, helping to reduce the impact of softer haulage volumes.
FY16 NPAT of $510m (down 16%) was impacted by higher interest expenses. Dividends per share (DPS) of $0.24.
FY17 EBIT guidance of $900m.
We’ve been on the short side of this trade and we now look to lock in profits.
Short AZJ.ASX
Time to look at AZJ on the short side. $4.80 range is the target I’ve been waiting for, the stock has pushed higher against a backdrop of selling in the broader equity market but with no revenue growth, 100% payout ratio on the dividend, I think AZJ is susceptible to a pullback into the July/Aug earnings result. Target pullback to $4.40 – $4.50
Short AZJ.ASX
AZJ is within 5% of the target to begin shorting the stock. Increased cost of debt, 100% dividend payout ratio and limited top line revenue growth should see the stock trade from our $4.60 to $4.80 short range back to sub $4.40 in the near future. Keep this one on your radar.
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