"The dividend payout ratio seems to indicate they are out of ideas for spending their money elsewhere... where is the revenue/profit growth going to come from?"
Growing revenue and profits does not necessarily require the spending of money.
It can be quite easily achieved by running your existing business better.
And when your business used to be run by civil servants, on behalf of civil servants, then finding ways to improve it is not hard to do, as has been the case for AZJ this far since it has been in the private sector:
Operating Ratio (Operating Expenses/Revenue):
FY2011: 88.0%
FY2012: 83.4%
Fy2013: 79.8%
FY2014: 77.7%
FY2015: 74.3% [*]
The financial consequence of this improved operating performance has been as follows:
EBIT [growth on pcp]:
FY2011: $383m
FY2012: $584m [+53%]
Fy2013: $754m [+29%]
FY2014: $851m [+13%]
FY2015: $970m [+14%] [*]
...as well as:
DPS [growth on pcp]:
FY2011: 3.7 cps
FY2012: 8.3 cps [+124%]
Fy2013: 12.3 cps [+41%]
FY2014: 16.5 cps [+34%]
FY2015: 24.0 cps [+45%] [*]
[*] At the time of listing, management was targeting a 75% Operating Ratio. If you can locate it, have a read of analyst research published on the company at the time.
The consensus view was that it couldn't be done.
Well, here we are today and the company has pushed through that original target and is now actually officially targeting a 70% Operating Ratio as the new objective.
To put that 70% Operating Ratio into context, based on the company's current revenue base of around $4.0bn, that equates to EBIT of around $1.25bn (25% higher than FY2015's $970m).
Given the operating leverage inherent in the company's P&L, that 25% lift in EBIT would theoretically translate into 28% to 30% higher NPAT and, depending on how aggressive the ongoing share buyback is, it would likely mean EPS accretion in excess of 30%.
Under that sort of outcome, based on the current price, the stock would be trading on just 13.5x P/E and 7.6x EV/EBITDA.
Somehow, I don't think that will be the case. I strongly expect the current valuation multiples of around 17.5x P/E and 9.5x EV/EBITDA to maintained.
Meaning the share price trajectory will continue its inexorable path upwards, much like it has done since its privatisation listing in 2011.
But how, you may well ask, do they get to that 70% Operating Margin?
The answer can be found in the announcements made to the market in recent months, specifically:
"Aurizon reaches in-principle agreement with unions on Train Crew Enterprise Agreement" [06 June 2015]
"Update on Queensland Enterprise Agreements"
[15 June 2015]
"Aurizon welcomes positive vote on Queensland Construction and Maintenance Enterprise Agreement"
[15 July 2015]
"Aurizon welcomes positive vote on Queensland Train Crew and Transport Operations Enterprise Agreement"
[27 July 2015]
"Fair Work Commission approves Construction and Maintenance Enterprise Agreement"
[21 August 2015]
The company now has the ability to optimise its human resource base - 5,000 employees are covered by the EA's in question - in a manner that affords it a degree of flexibility that to date been unavailable to it, including the ability to roster employees, improve productivity and the removal of legacy provisions, such as the archaic "no forced redundancy" provisions.
A 70% Operating Margin is a mere formality and just the passage of time is required to get there.
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