2010 Media Releases

Deutsche Bank (XETRA: DBKGn.DE / NYSE: DB) has initiated coverage of QR National (ASX: QRN) with a Hold recommendation.

QR National is an Australian freight rail haulage operator, focused primarily on the transportation of coal, iron ore, other minerals and general freight as well as containerised freight. Its recent listing on the Australian Stock Exchange was priced at A$2.55 a share and created a company with a market capitalisation of approximately A$6.5 billion.

Research analyst Cameron McDonald said, “The outlook for QR National is highly dependent on growth in Australia’s coal export market, affecting both its coal haulage volumes and utilisation of its network. Given it is trading at close to our target price, we have initiated coverage with a Hold recommendation.”

QR National also operates and manages the Central Queensland Coal Network (CQCN) under a 99 year lease arrangement with the Queensland state and provides a range of specialist rail engineering, construction and maintenance services. “We believe QR National’s performance will also depend on its ability to maintain market share of the coal haulage market in Queensland and to gain additional market share in New South Wales,” McDonald said.

The Deutsche Bank analysts expect the coal export market to grow by 5.2% per annum through to 2020 and have allowed QR National to achieve a 25% long-term market share in New South Wales, which provides a partial offset to the 30% market share they expect the company to lose in Queensland by 2015.

McDonald said, “While the opportunity to restructure an ex public sector entity appears attractive – our analysis highlights more than A$200m in head office costs alone - we believe it may be difficult to capture this benefit over the short to medium term given existing agreements regarding conditions covering 7,300 employees.”

Key upside risks identified by the analysts include an increase in the company’s coal haulage marketshare in NSW, improved networks business returns, further capture of iron ore haulage contracts and favourable movements in interest rates, currency and fuel prices. Downside risks include a reduction in coal volume demand from export markets, future carbon pricing, customer concentration and competition, industrial action, increases to capital expenditure and adverse movements in interest rates, currency and fuel prices. The analysts  have not allowed for any discount for the residual Queensland government holding of up to 40% in the company which will not be held long term.

For further information, please contact:

Name : Amy King   
Phone: +61 (0) 2 8258 2505
E-Mail: amy.king@db.com