Toll Holdings (TOL) is Australasia’s largest provider of integrated logistics services. The company’s assets are wide-ranging in the transport space, and cover trucking, rail, air, shipping and ports.
It generates annual revenue of $8.2 billion and operates an extensive network of over 1,200 sites in 55 countries, with in excess of 45,000 employees.
The group is divided into six segments: Toll Global Express, Toll Global Logistics, Toll Global Forwarding, Toll Specialized and Domestic Freight, Toll Domestic Forwarding, Toll Global Resources
TOL’s FY12 results were disappointing to say the least. On a reported basis, FY12 NPAT was $71 million, a 75.9% decrease on the FY11 numbers. The result was hampered by a $215 million impairment charge relating to Toll Express Japan (Footwork Express) and properties in Australia.
FY12 EPS on an underlying basis was 41.4 cents per share which was a 7.1% decrease on the prior year’s result. The fall in profit came despite a 5.9% increase in sales revenue, which is evidence of a contraction in margins.
TOL seems to be fighting a war on several fronts at the moment, with many of its operations under pressure. The group’s domestic operations are being squeezed by rival Linfox, which is pricing its services aggressively in an attempt to gain market share.
This is a trend we think will continue over FY13, and TOL’s margins are likely to contract further as it becomes forced to respond to Linfox’s pricing moves.
We also expect Toll Global Resources to come under pressure, with our major concern being its leverage to the mining capex cycle. As miners cut back their capital expenditure we expect TOL’s resources division to also face some hardships.
TOL did not provide any specific guidance for FY13, but management did indicate earnings growth could be achieved without a macro recovery. We think management are being optimistic and are setting up their shareholders for disappointment.
Overall we cannot see much positive news on the horizon for TOL and as such there is likely to be further weakness for its share price.
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