Qube profit rises as Patrick benefits from DP World port chaos

Qube is banking on the strength of its 50 per cent ownership of stevedore Patrick to help increase its underlying full-year profit and is interested in buying the other half of the company.

Patrick’s Port Botany terminal. Its market share rose to 49 per cent in the six months to December 2023. Picture: Julian Andrews

Logistics group Qube is banking on the strength of its 50 per cent ownership of the nation’s biggest stevedore, Patrick, to help increase its underlying full-year profit by as much as 10 per cent, while flagging its interest in buying the other half of the company.

Using the multiple that Qube and co-owner Brookfield paid for Patrick back in 2016, the stevedore could be worth as much as $6.4bn based on estimated full year earnings before interest, tax, depreciation and amortisation of $400m.

“We really love the asset,” said Qube chief executive officer Paul Digney of Patrick.

Mr Digney said since taking ownership of Patrick, the consortium had “nearly doubled” earnings from 2016 levels of $180m for full year EBITDA to $200.2m for the half, even as the nation’s overall container volumes dropped 4.5 per cent in the first half. Margins have risen since the takeover by eight percentage points to a very high 43.3 per cent.

“Our revenues rose in a falling market,” Mr Digney said.

Patrick has fully automated terminals in Sydney and Brisbane and partially automated terminals in Fremantle and Melbourne, which gives it a productivity advantage of about 10 per cent over its next biggest rival, DP World.

Its share of the nation’s container market usually sits in the low 40 per cent. This figure surged to 49 per cent in the half as importers and exporters tried to avoid DP World due to a four month long industrial dispute at its rival that triggered a backlog of as many as 50,000 containers at any one time; plus a one-off cyber attack.

Mr Digney said he expected Patrick’s market share would return to about 41-43 per cent next year because DP World had come to an agreement with the Maritime Union of Australia and also after it lost part of a key contract in Melbourne with Mediterranean Shipping Company.

Qube chief executive Paul Digney.

This, coupled with dampened demand for imports as Australians struggle with the cost of living crisis should pull the company’s performance back.

“Interest rates are starting to hit and everyone is not buying as much,” Mr Digney said.

Patrick’s other owner is Brookfield, which is not believed to be currently a seller but has the asset in a ten year fund that will close in two years.

Qube is the nation’s biggest import and export logistics provider.

Apart from its shareholding in Patrick, the company’s other unit is its operating division, which comprises logistics and infrastructure mainly relating to containerised cargo and freight forwarding; and ports and bulk, which handles items such as cars and energy.

On Thursday, Qube reported underlying first half earnings before interest and tax of $154m, up 9 per cent on the previous year but below the consensus of $162.5m.

The company will pay a higher-than-expected dividend of 4 cents per share, up from 3.75 cents per share a year earlier, representing a 50 per cent payout ratio.

“This is a solid result with Patrick the main source of positive surprise while the operating division was softer than expected,” said UBS in a note to clients.

Revenue from underlying operations rose 8.7 per cent to $1.63bn. The company saw a “material increase” in net debt of $304m to $1.25bn and net interest expenses rose by $20m

Qube’s shares have risen 10 per cent in the past 12 months and rose 1.2 per cent to $3.38 during trade on Thursday.

Mr Digney said the company was finding it easier to hire staff, after struggling to get workers, particularly due to the mining boom in Western Australia.

He also pointed to “very healthy” growth in the automotive space.

Qube current earns as much as 3 per cent of its revenue from lithium exports and Mr Digney said the company was watching the market closely as lithium prices have slumped as much as 70 per cent in the past year, discouraging miners.

“We are keeping an eye on it,” Mr Digney said, adding that most of its assets used in the lithium sector “are mobile” such as trucks, front loaders, and containers, and therefore can be used in other parts of the business.