01.09.2011, 10:38
Globaltrans Held Conference Call
OREANDA-NEWS. September 01, 2011. Globaltrans held a conference call dedicated to its 1H11 IFRS results. Management commented on Freight One acquisition plans, the current market situation, further fleet expansion and other issues, reported the press-centre of ATON:
Freight One acquisition plans
According to management, Russian Railways’ board of directors should have approved the Freight One auction yesterday (30 Aug). After it does so, more information should be made released to auction participants. Once this new data is available, Globaltrans’ management will be able to assess whether it makes sense to bid for Freight One. However, management underlined they are not absolutely committed to acquiring Freight One, so the company will set a reasonable price limit for bidding.
Leverage
The company envisages an optimal debt level at 1.0-2.0x net debt/EBITDA if it chooses to grow organically. If the actual level is below this limit additional dividends could be paid (its net debt/EBITDA ratio was 0.7x in 1H11). This level is likely to be exceeded if Freight One is acquired but the company expects to return to normal debt levels in less than 1.5 years if Freight One is purchased.
Demand for services
Globaltrans sees strong demand for its services which it attributes to the quality and range of services provided. Management said that Severstal is likely to choose Globaltrans as its general logistics operator this year, while Metalloinvest has also strongly increased the volume of services purchased due to favourable coal market conditions. Management expects demand to remain strong in 2H11.
Tariffs
Management expects tariffs to grow in 2H11 but not radically. No meaningful changes in the cargo mix are expected by the company.
Unification of empty run tariffs
Unification of empty run tariffs is likely to take place in 2H11, the company said. After this is accomplished, the company will have greater flexibility in logistics. At the same time, growth in tariffs for Class 1 cargoes (the largest group transported by Globaltrans) is likely to be compensated by an increase in Globaltrans’ tariffs.
Railcar rent costs
Railcar operating lease costs are likely to rise further in 2H11 but the company has already signed contracts for railcar rental that are effective until year end, so it is unlikely to be affected by this cost inflation.
Railcar prices
Current railcar prices exceed Globaltrans’ maximum acceptable level for resuming capital expenditures on its fleet. However, management expects prices to decline later this year. The company would consider buying railcars at USD 75,000 (the current price, according to Aton estimates, is approximately USD 77,000 per gondola railcar).
Bottom line
The overall impression from the teleconference was positive as Globaltrans sees strong demand for its services and has further expansion opportunities in view. We also welcome the fact that management is not keen on acquiring Freight One at any cost, thus limiting the risk of overleveraging the company. We believe Globaltrans’ strong growth prospects and defensive profile should support its share price.
Freight One acquisition plans
According to management, Russian Railways’ board of directors should have approved the Freight One auction yesterday (30 Aug). After it does so, more information should be made released to auction participants. Once this new data is available, Globaltrans’ management will be able to assess whether it makes sense to bid for Freight One. However, management underlined they are not absolutely committed to acquiring Freight One, so the company will set a reasonable price limit for bidding.
Leverage
The company envisages an optimal debt level at 1.0-2.0x net debt/EBITDA if it chooses to grow organically. If the actual level is below this limit additional dividends could be paid (its net debt/EBITDA ratio was 0.7x in 1H11). This level is likely to be exceeded if Freight One is acquired but the company expects to return to normal debt levels in less than 1.5 years if Freight One is purchased.
Demand for services
Globaltrans sees strong demand for its services which it attributes to the quality and range of services provided. Management said that Severstal is likely to choose Globaltrans as its general logistics operator this year, while Metalloinvest has also strongly increased the volume of services purchased due to favourable coal market conditions. Management expects demand to remain strong in 2H11.
Tariffs
Management expects tariffs to grow in 2H11 but not radically. No meaningful changes in the cargo mix are expected by the company.
Unification of empty run tariffs
Unification of empty run tariffs is likely to take place in 2H11, the company said. After this is accomplished, the company will have greater flexibility in logistics. At the same time, growth in tariffs for Class 1 cargoes (the largest group transported by Globaltrans) is likely to be compensated by an increase in Globaltrans’ tariffs.
Railcar rent costs
Railcar operating lease costs are likely to rise further in 2H11 but the company has already signed contracts for railcar rental that are effective until year end, so it is unlikely to be affected by this cost inflation.
Railcar prices
Current railcar prices exceed Globaltrans’ maximum acceptable level for resuming capital expenditures on its fleet. However, management expects prices to decline later this year. The company would consider buying railcars at USD 75,000 (the current price, according to Aton estimates, is approximately USD 77,000 per gondola railcar).
Bottom line
The overall impression from the teleconference was positive as Globaltrans sees strong demand for its services and has further expansion opportunities in view. We also welcome the fact that management is not keen on acquiring Freight One at any cost, thus limiting the risk of overleveraging the company. We believe Globaltrans’ strong growth prospects and defensive profile should support its share price.
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