Solid 1H for Aurizon but Outlook Is Subdued; FVE Downgraded to AUD 4

Australian Reporting Season: Aurizon Holdings, Bendigo & Adelaide Bank and GPT Group

Australian Reporting Season: Insurance Australia Group, Villa World & Wesfarmers

We Remain Concerned Over Medium-Term Risks

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Morningstar, Inc.

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Equity Bottom-Up

While off the recent highs, coal and iron ore prices remain very attractive for miners. Ultimately, what is good for its customers, is good for Aurizon and the volumes it transports. The December quarter saw a small increase in coal and iron ore volumes, and we expect this to continue through 2017. However, more significant volume growth would require major investment in expanding mines, and we believe this is unlikely in the near term. We've adjusted our forecasts marginally, but keep our AUD 4.50 per share fair value estimate. At the current price of AUD 5.05, Aurizon is moderately overvalued.Analyst: Adrian Atkins

While off the recent highs, coal and iron ore prices remain very attractive for miners. Ultimately, what is good for its customers, is good for Aurizon and the volumes it transports. The December quarter saw a small increase in coal and iron ore volumes, and we expect this to continue through 2017. However, more significant volume growth would require major investment in expanding mines, and we believe this is unlikely in the near term. We've adjusted our forecasts marginally, but keep our AUD 4.50 per share fair value estimate. At the current price of AUD 5.05, Aurizon is moderately overvalued.Analyst: Adrian Atkins

Strong Commodity Prices a Positive, But Unlikely to Drive Volumes Much Higher for Aurizon