Toll Holdings Update

Toll Holdings have a reinstated Buy 1 broker call and a stock price target of $16 from Australian shares analyst UBS. Australian business is a 8-11%pa topline grower: Following a period of research restriction and Toll Holdings' demerger of Asciano, we are reinstating with a Buy 1 rating and a A$16.00 price target. The key to Toll Holdings’ investment thesis is its ability to sustainably generate 8-11%pa topline growth and ongoing margin expansion by virtue of its dominance, scale and integration in Australia. EPS accretion inevitable from A$3bn debt capacity: With forecast FY08 net debt of only A$0.4bn, they believe Toll Holdings has capacity for A$1.3bn in acquisitions and this increases to A$3.5bn after a sale of Virgin Blue. They calculate the debt versus equity arbitrage on this capacity alone (without synergies) would provide Toll 7% and 20% value accretion respectively. Virgin Blue stake likely to be diluted: They estimate Toll Holdings' 63% stake in Virgin Blue will account for 30% of its proportionate EBITA in FY08. Management is cognisant of the market’s nervousness of this exposure and they believe the market wrongly assumes significant value dilution from its sale. EPS dilution is inevitable, but they estimate value dilution could be as little as only 3%. Their A$16.00 price target reflects a 12-month forward version of their current SOTP-derived A$14.30 valuation, an additional A$1.00 from deploying A$1.3bn in acquisitions, and A$0.40 of value dilution from divesting Virgin Blue.

Toll Holdings Limited is listed on the Australian Stock Exchange (ASX) under stock code TOL. You can view their investor website here. TOL was listed on the ASX on 12 October, 1993. Toll Holdings is involved in local freight distribution; Interstate freight forwarding by road, rail and sea; Container packing and unpacking; Warehousing, storage and distribution; Stevedoring; Ports services; Shipping; Rail services. John Moule is the Chairman of Toll and Paul Little the CEO. Find out the meaning of the recommendations in this primer. Browse for other stockbroker recommendations. You can use Instalment Warrants to trade . Check your charts and good luck with your share trading!