Morgans upgrades to Add from Hold, assessing returns are improving at current prices. Beyond FY22 the broker expects a slight decline in earnings through FY23-24 because of falling interest rates.
This will affect the re-set of the network pricing in FY24 and pressure on coal earnings is anticipated amid a decline in contracted capacity and pricing.
The long-dated nature of the assets makes earnings less correlated with the business cycle and this provides a defensive element, the broker suggests. There is also the flexibility to pursue growth investments and/or capital management. Target is raised to $4.14 from $4.06.
Target price is $4.14.Current Price is $3.88. Difference: $0.26 – (brackets indicate current price is over target). If AZJ meets the Morgans target it will return approximately 6% (excluding dividends, fees and charges – negative figures indicate an expected loss).