Asciano Group (AIO) has a price target of $6.50 from Australian stock analyst UBS.

Momentum continues

Group revenue growth continues at 9%:

Asciano's investor update highlights solid volume and revenue growth trends across its major divisions for the nine months to March 2008. We estimate weighted average volume growth of 7%. Container volumes were a key highlight with implied growth of 13% in the March quarter, well ahead of 6% market growth. We estimate these figures imply year-to-date group revenue growth of 9%, similar to the 9% seen in the 1H.

Management starting to make positive improvements:

Recent positive milestones such as the negotiation of a take or pay contract with Graincorp and a successful outcome in the Saudi Landbridge tender are restoring operational credibility to Asciano. Signing contracts in Queensland coal remain the next major milestone.

Capital structure continues to be reviewed:

The company also reiterated that it is in full compliance with all banking covenants and that future funding options continue to be reviewed with respect to refinancing commitments as well as target capital structure. As written previously, we believe management will consider changes to its capital structure following a thorough review of capital investment requirements, which the market is likely to see as a positive catalyst.

Valuation

Our sum of the parts DCF valuation is A$6.40 and price target is A$6.50 based on Valuation x (1-WACC) - Dividend.