Shares in global logistics business Qube Holdings Ltd (ASX: QUB) have opened stronger this morning after a positive broker note out of Goldman Sachs.
Who Is Qube Holdings?
Qube is a diversified logistics and infrastructure company founded in 2010 following the acquisition of Kaplan Equity by KFM Diversified Infrastructure and Logistics Fund, which rebranded as Qube Logistics. Qube is comprised of five business units including Ports, Bulk, Logistics, Infrastructure and Property, and Strategic Assets.
What Goldman Sachs Have Said
According to the broker note, Goldman Sachs have reaffirmed their buy rating on the stock and maintained their price target of $3.57. This price target equates to a 11% premium to the most recent closing price.
The broker expects FY20 to be a solid year, driven by a recovery in logistics generally and an improvement in a couple of Qube’s key projects.
The Qube share price has had a good run already, up about 15% since the start of June and more than 40% since April.
My Thoughts On Qube
Admittedly, I haven’t put the hours in to do a full in depth analysis of the company. However, there are a few things that deter me from looking far beyond the numbers.
Firstly, the company requires a lot of capital and has used debt in recent years to meet these needs. Whilst a number of expensive assets sitting on the balance sheet may sound like a positive, in my skeptical mind I see it as a hotbed for “one-off” writedowns and asset impairments.
With the first concern in mind, I go straight to the cash flow statement to see if these assets are producing a nice steady stream of cash flowing into the business.
Whilst operating cash flow is positive (money coming in from customers exceeds payment to suppliers and interest on borrowings), it has not been sufficient to cover the ongoing investment needs of the company.
As a result, Qube has borrowed money to make up the shortfall in order to reinvest and grow the business. The current debt to equity ratio sits at just above 50%, which is certainly manageable. However, if the company is unable to generate more cash soon, then debt is likely to grow to more worrying levels in the future.
Add to this the fact that Qube is trading on a lofty price to earnings multiple (P/E) of 26 despite a rather anemic return on equity of 7% and I start to think that there are other ASX-listed shares I’d be better off spending my time on.
[ls_content_block id=”14947″ para=”paragraphs”]
At the time of publishing, Luke has no financial interest in any companies mentioned.
