Rail shares in limelight as port eyes stake

GEOFF SENESCALL tracks the speculation entwining Tranz Rail and Ports of Auckland

Tranz Rail's recent rapid share price rise has been linked, in part, to talk of Ports of Auckland eyeing a stake in the company.

Fuelling this speculation are suggestions that the port company has been sounding out broking firms about raising money. Any such activity would not include Infrastructure Auckland, the port's 80 per cent shareholder.

These funds would be used to buy a 20 per cent holding in Tranz Rail, whose major shareholders include the merchant bankers Sir Michael Fay, David Richwhite and United States-based Wisconsin Rail.

One suggestion involved a broker being mandated to make the purchase either by directly targeting existing major shareholders or standing in the market. But any such plans had been put on hold for now by the rise in the price of the rail shares, which have shot up 42 per cent in the last month.

A spokeswoman for Ports of Auckland indicated to the Business Herald, however, that no mandate had been given. She was not aware of anything happening on the Tranz Rail front at the moment.

But rumours continue to persist. Market analysts see any move by the port company into Tranz Rail as defensive.

Last year, Ports of Auckland lost 10 per cent of its container volumes to Port of Tauranga principally due to the loss of the shipping line ANZDL changing camps.

This follows Port of Tauranga opening up a South Auckland port, which also included a joint venture with Tranz Rail. The loss of its container volume saw Ports of Auckland's share price fall around 20 per cent. By buying into Tranz Rail, Ports of Auckland could weaken Port of Tauranga's expansion plans.

Further muddying the waters was the recent purchase of a 5 per cent holding in Tranz Rail by the infrastructure investment company Infratil. Infratil also owns 24 per cent of Port of Tauranga and might have moved on the Tranz Rail shares to stop any similar move by Port of Auckland.

Meanwhile, brokers point to other reasons why the share price of Tranz Rail might be running.

On Friday last week it sold a lease for part of its Auckland rail network for $65 million to a local government agency. Analysts estimated this added between 50c to 65c to the Tranz Rail share price.

The one-off gain also came on top of higher profit forecast on recent signs that Tranz Rail was benefiting from an improving economy and stronger exports, analysts said.

In the third quarter ending March 31, Tranz Rail beat expectations when it reported that profit from operations rose 8 per cent to $17.5 million, or 14c a share, as freight traffic offset higher fuel costs. Analysts have raised their forecasts for the next financial year.

The operator has a new chief executive in Michael Beard, who was hired from Australia-New Zealand Direct Line, a closely held shipping company, of which he was president and chief executive. He replaced Francis Small, who was named vice-chairman.

Stephen Shoobert, an analyst at Salomon Smith Barney, said: "Beard is of the view the company was more engineering-focused than customer-focused, and that it was spending a lot of capital to maintain its assets.

"He is in favour of lowering operating expenditure and operating assets. Now he needs to go out and prove he can do it."