Ira Sohn London: Chris Hohn, The Children’s Investment Fund

Trade Idea: Aurizon, EADS

Price Target:

Valuation: EADS NV (EPA:EAD) at only 10x 2015 earnings could move up to a similar valuation to that of The Boeing Company (NYSE:BA), which trades at 50x earnings.

Ira Sohn Conference notes chris hohn

Themes:

Both previously government companies. Lots of scope for reorganization and growth.

Chris Hohn on Aurizon

Railroad, fund holds largest allocation from the Queensland government at the IPO as government wanted assistance in running company. EPS forecast to triple 2012-2017. 20-25% IIR. Contracts are being renegotiated and costs are being cut. Strong CEO used to work at BHP. Zero debt. Thousands of job cuts underway. Plenty of opportunity for railcar volume growth, nearly 30% volume growth available. Good play on the Australian resource market. Holds a duopoly over the Queensland rail market. With worries about China and the price of commodities falling, miners are ramping up production, this is good for Aurizon Mines Ltd. (NYSEMKT:AZK) (TSE:ARZ) as the company has more volume.

Chinese and Indian coal and coal consumption 20% CAGR until 2017, this will drive coal mining growth and volume growth on the rails. At present, 30% + EBIT margin, world leading. With assets of A$8 billion the company went private with no debt, which was surprising. The fund is a significant shareholder and has convinced the company to re-leverage. Now increasing leverage, $1 billion buyback last year. Increasing leverage and investment means that the company will be able to return 60-70% of earnings as dividends during the next few years, as a result, double-digit yield expected in next few years.

Chris Hohn on EADS NV (EPA:EAD)

For years company did not make money. Global duopoly with The Boeing Company (NYSE:BA). 8-9 yr order backlog. Never been properly managed. New CEO is aggressive. During the past few years the company has been aggressively chasing market share from Boeing, now stands at 50% share, actually more like 60% – 40% in the narrow body segment, in Airbus’s favor.

No chance of competitors entering the market in many decades. Order backlog stronger than Boeing. Lots of aircraft orders from emerging markets, which no longer want secondhand European aircraft. New management targets doubling of profit margin. 10% EBIT margin by 2015. About to undertake a massive cost cutting within the defense sector of the business. Committed to a buyback of E3.75 billion over 18 months, 10% mkt cap. Once again, recently privatized company, plenty of room for improvement in a high-growth, high barriers to entry market.

Catalysts:

see: Masroor Siddiqui Tabs Salvatore Ferragamo For Growth In Luxury Goods