Qube’s strategy is to consolidate the fragmented logistics chain surrounding the export and import of containers, bulk products, automobiles, and general cargo, to create a more efficient and cost-effective supply chain.

The business has enjoyed successes to date, though significant scope for industry consolidation remains. We expect Qube (ASX: QUB) to generate robust earnings growth over the long term on acquisitions, developments, and organic growth.

The domestic port logistics industry has traditionally been very fragmented, highly competitive, and inefficient. Competitors are typically small operators with limited geographic scope offering limited point-to-point services.

Qube’s strategy is to provide a broad range of services nationwide, touching multiple segments of the import/export supply chain. We are supportive of this strategy and believe there is significant scope for further industry rationalisation.

Competitive position could strengthen

Consolidating the fragmented logistics chain should significantly improve Qube’s competitive position.

Qube has already established a dominant market share in some specific port logistics offerings, particularly with regards to rail haulage services to and from Port Botany.

Successfully developing its strategic land holdings into inland intermodal terminals should support cost advantages over less efficient peers.

Qube aims to develop inland rail terminals as an alternative to moving container volumes from port via road. When fully developed, Moorebank will be Australia’s largest inland intermodal terminal.

The bulk and general segments are highly fragmented and competitive but Qube is one of the largest players, with operations at 28 city and regional ports.

The automotive stevedoring business operates in a duopoly market structure, holding long-term off-ship transportation, processing and storage contracts with major foreign vehicle manufacturers.

Bulls Say

  • There is significant potential to increase efficiency through vertical integration of port logistics services. Qube will attempt to deliver on this strategy through consolidation and integration.
  • The Moorebank Intermodal Terminal should become a key piece of Sydney’s transport infrastructure, driving strong returns for Qube.
  • Senior management has a proven track record in the port logistics segment and has demonstrated an ability to generate strong returns for shareholders.

Bears Say

  • A corporate structure of associate companies, acquired businesses, and newly purchased assets limits transparency. Meanwhile, a strategy focused on acquisitions adds integration risk.
  • While Qube’s long-term prospects are attractive, its businesses are cyclical and cash flow may be affected by a deterioration in economic conditions. Currently trading on a high P/E ratio, any disappointments could hit the share price.

Shares trade at reasonable price

Our fair value estimate for Qube is AUD 4 per share. Our fair value estimate implies fiscal 2026 price/earnings of 24, an enterprise value/EBITDA multiple of 11, and a dividend yield of 2.5% fully franked.

It is derived using discounted cash flow methodology, with a weighted average cost of capital of 7.4%. It assumes modest organic earnings growth and the integration of new assets and businesses.

The outlook is good, and we forecast that revenue growth averages 7% annually during the next five years as acquisitions, contract wins, and investment in new businesses support growth.

Operating margins are anticipated to average 8% for the five years ending fiscal 2030, as input cost inflation is offset by synergies, new projects, efficiency gains, and business mix shifting to higher-margin port and rail services.

Qube Holdings (QUB)

  • Moat rating: Narrow Moat
  • Fair Value estimate: $4 per share
  • Share price Sep 16: $4.07
  • Star Rating: ★★★

Get Morningstar insights in your inbox

Terms used in this article

Star Rating: Our one- to five-star ratings are guideposts to a broad audience and individuals must consider their own specific investment goals, risk tolerance, and several other factors. A five-star rating means our analysts think the current market price likely represents an excessively pessimistic outlook and that beyond fair risk-adjusted returns are likely over a long timeframe. A one-star rating means our analysts think the market is pricing in an excessively optimistic outlook, limiting upside potential and leaving the investor exposed to capital loss.

Fair Value: Morningstar’s Fair Value estimate results from a detailed projection of a company’s future cash flows, resulting from our analysts’ independent primary research. Price To Fair Value measures the current market price against estimated Fair Value. If a company’s stock trades at $100 and our analysts believe it is worth $200, the price to fair value ratio would be 0.5. A Price to Fair Value over 1 suggests the share is overvalued.

Moat Rating: An economic moat is a structural feature that allows a firm to sustain excess profits over a long period. Companies with a narrow moat are those we believe are more likely than not to sustain excess returns for at least a decade. For wide-moat companies, we have high confidence that excess returns will persist for 10 years and are likely to persist at least 20 years. To learn about finding different sources of moat, read this article by Mark LaMonica.