News that one of the world’s leading hedge fund managers had identified Aurizon Ltd (AZJ), the old Queensland Rail business, as one of his best investment ideas, sent the shares of the rail giant up 3.6% yesterday to $4.55, within sight of its all time high of $4.57.
Chris Hohn from Children’s Investment Fund told a New York investors conference Wednesday night, our time, that his best investment ideas at the moment were EADS (Airbus), Porsche and Aurizon, which raised eyebrows at the conference, according to reports.
Aurizon has upside, he was quoted as saying; “The simple story here is it’s moving from complete mismanagement…to a massive increase in earnings”.
He reckons Aurizon can double earnings over the next three to four years, with the stock doubling during that time as well.
AZJ YTD – Aurizon eyes $230m cost cuts
The Children’s Investment Fund earns money for its founders (Chris Hohn and his wife) and his investors, and London-based The Children’s Investment Fund Foundation. Hundreds of million of pounds have been donated to the foundation in recent years.
Some of his other investments have included US defence giant Lockheed Martin, the old News Corp, McGraw Hill and Moody’s, as well as EADS, Porsche and Aurizon.
The fund usually has up to 10 investments only, but takes large positions.
But it is an activist investor and if it seems that management and the board are not running a company the way Hohn sees it, he doesn’t hesitate to intervene. He has done it on numerous occasions in Japan (with Japan Tobacco), India and Europe (Arcelor Mittal, the world’s biggest steel company).
For that reason, he will probably take comfort from yesterday’s investor briefing from Aurizon which revealed the company plans to cut up to $230 million in costs over the next two years. The cuts will come from losing jobs, selling property and re-engineering the groups’ rail and train operating systems.
Aurizon also revealed to the briefing that it had carried almost 194 million tonnes of coal in the year to June, which was within its latest guidance (of 192 – 195 million tonnes) which was set in February
Aurizon said that it will strip out $100 million in so-called ‘‘support costs’’ over the next two years – up to $60 million of which will come from lowering its wages and salaries cost.
The reduction in labour costs will come from laying off an undisclosed number of workers, attrition, outsourcing work and reducing the use of contractors.
It also plans to reduce its real estate costs by up to $25 million, part of which will be done by selling property assets it believes it no longer needs.
Aurizon is also targeting more than $130 million in ‘‘productivity improvements’’ over the next two years, including up to $70 million in labour savings.
All but one of Aurizon’s 19 labour agreements, which cover about 88% of its workforce, expire by the end 2014. It says it will be seeking greater flexibility under these, and has made contingency plans should the negotiations prove difficult.
Aurizon has already reduced its workforce by about 1600 over the past two years through voluntary redundancy programs.
It will report its annual results on August 19.
The company said that "significant cultural change has already been embedded within the organisation".
"Functional structure implementation almost complete, providing solid foundation for delivering customer service excellence and disciplined operations.
"Strong Leadership team in place and responsible for accelerating the momentum of change, both top-down and bottom-up.
"Cost efficiencies and productivity gains achieved through greater integration and collaboration across the Enterprise.
"Strong alignment between Executive performance and shareholder value through the long and short term remuneration programs," the company said yesterday.
That will be music to the profit and loss account of investors such as Mr Hohn and others invested in Aurizon.
