Colonial takes up big Tranz Rail holding

By DANIEL RIORDAN

One of Australia's biggest fund managers, Colonial First State, has become Tranz Rail's biggest shareholder after the departure of Fay Richwhite and Wisconsin Central Transportation.

Colonial senior portfolio manager Barry Henderson said the company was in Tranz Rail for the long haul, and had a three to five-year investment horizon.

Colonial manages about $49 billion for its owner, Commonwealth Bank of Australia, and other clients.

It first bought Tranz Rail shares a couple of months ago and increased its stake to 11.4 per cent when the main shareholders sold out last month.

Fay Richwhite's sale of its 15 per cent stake was followed two weeks later by Wisconsin Central's sale of its 24 per cent.

Institutions now dominate Tranz Rail's share register. The following owned more than 5 per cent of the company at the beginning of the month:

Colonial First State, 11.4 per cent.

Infratil, 7.2 per cent.

AXA Asia Pacific Holdings, 6.3 per cent.Armstrong Jones, 6.1 per cent.

Marathon Asset Management, 5.4 per cent.

BT Financial Group, 5.2 per cent.

Tranz Rail says most of the remaining top 15 shareholders are institutions.

Henderson said Colonial had infrastructure investments in Australia, including stakes in toll roads, and liked what it saw in New Zealand.

Tranz Rail had made changes in terms of cost reductions and putting out jobs, all with a view to increasing service to clients.

Railways had tended to behave as monopoly suppliers, but that was no longer the case, said Henderson.

"We believe Tranz Rail over the next couple of years will be much more client focused with a much lower cost base.

"They'll be able to supply a much improved service at a lower price, so you'll see volume coming back to the railways."

Tranz Rail is near the end of an 18-month restructuring plan aimed at focusing its business on freight.

It has sold its long-haul passenger services and the assets and lease on its Auckland commuter operations, is negotiating to sell its commuter operations in Wellington, and has put out most of its capital-intensive maintenance work.

Henderson said he expected strong growth in the company's freight operations, taking advantage of an economic recovery and an ability to take business off its competitors on the road.

He expected New Zealand's growth to continue to be export led and focused on the bulk commodities suited to rail.

"A lot of the volume that goes by truck is actually more suitable to rail if the service can be improved and if they can do it more cheaply and more timely."



He said putting out most of the company's maintenance - to Alstom (locomotives) and Transfield (tracks) - was also positive.



Henderson said any decision on increasing Colonial's stake would depend on price.

"Obviously we're pretty favourably disposed to management. We think they've made good progress, but it depends on price and management's continued progress towards achieving their goals.

"We appreciate the fact management have nailed their colours to the mast. They've got their targets, what they want to achieve, and every quarter they come out and say 'this is what we've done', and investors can track their performance."

The removal of the 15-month share overhang is helping Tranz Rail's share price, which at $4 is 40c higher than its market price at the time Wisconsin sold on February 21.

Wisconsin sold at $3.70 a share, 10c more than Fay Richwhite.