Qube Holding's Financial Performance Analysis

This assignment delves into a comprehensive analysis of Qube Holding's financial standing. It examines the company's financial performance, highlighting key metrics such as revenue growth, profitability, and return on equity. The analysis also explores Qube Holding's capital structure, including its debt levels and optimal financing strategy. Furthermore, it assesses the company's market position within the transportation industry and considers future growth prospects based on analyst reports and financial forecasts.

Running head: INTRODUCTION TO ACCOUNTING AND FINANCE
Introduction to accounting and finance
Name of the student
Name of the university
Author note

1INTRODUCTION TO ACCOUNTING AND FINANCE
Table of Contents
Part I – Debt valuation...............................................................................................................2
Part II – Share valuation.............................................................................................................3
Part III – Cost of capital.............................................................................................................7
Part IV – Analysis of the market................................................................................................9
Reference..................................................................................................................................11

2INTRODUCTION TO ACCOUNTING AND FINANCE
Part I – Debt valuation
1. Short term and long term debt
Short term debt – for the accounting year ended on 30th June 2017, the short term debt of the
company amounted to $ 0.8 million. The total borrowings were raised through secured term
from the finance lease liabilities.
Long term debt - for the accounting year ended on 30th June 2017, the long term debt of the
company amounted to $ 801.1 million. During the year the company entered in a agreement
for senior unsecured 7 year debt facility of bilateral term amounted to $ 150 million with the
Clean Energy Finance Corporation. Further, the company raised an amount of $ 305 million
through the ASX listed note issue for the period of 7 years. Out of the total amount of $ 801.1
borrowings, an amount of $ 797.5 million were raised through unsecured sources and the rest
amount of $ 3.6 million were raised through secured term from the finance lease liabilities
(Qube.com.au, 2017).
2. Structure of debt
The net debt of the company for the year ended on 30th June 2017 amounted to $
801.9 million. Out of which $ 0.8 million falls under short-term and $ 801.1 million falls
under long-term. Further, out of the total borrowings, amounts of $ 797.5 were raised through
unsecured source and $ 4.4 million were raised through secured sources.
3. Influence of the industry
Qube Holdings Limited falls under the logistics and infrastructure industry in
Australia. The performance of logistic system has major effect on the capital structure,
competitiveness, service quality and revenue structure. However, as the logistic industry is
growing fast for the last few years and chances of failures are less, it is easy for them to raise
borrowings long term and unsecured loan and therefore, Qube’s debt structure includes long
– term and unsecured debt.
4. Debt cost
The cost of the debt for the year ended on 30th June 2017 was 5%.

3INTRODUCTION TO ACCOUNTING AND FINANCE
Part II – Share valuation
1. Cost of equity of the company
Cost of equity (ke) = Rf + β (Rm – Rf)
Where,
Β = Beta = 1.42
Calculation of Beta from stock return and market return
Qube Holding S&P 500
Date Adj Close Return Date Adj Close
Retur
n
9/30/2012 null
10/1/201
2 null
10/31/201
2 1.27601
11/1/201
2 1416.18
11/30/201
2 1.38787 8.77%
12/1/201
2 1426.19 0.71%
12/31/201
2 1.47073 5.97% 1/1/2013 1498.11 5.04%
1/31/2013 1.46245 -0.56% 2/1/2013 1514.68 1.11%
2/28/2013 1.40445 -3.97% 3/1/2013 1569.19 3.60%
3/31/2013 1.46908 4.60% 4/1/2013 1597.57 1.81%
4/30/2013 1.44389 -1.71% 5/1/2013 1630.74 2.08%
5/31/2013 1.39772 -3.20% 6/1/2013 1606.28 -1.50%
6/30/2013 1.48587 6.31% 7/1/2013 1685.73 4.95%
7/31/2013 1.51524 1.98% 8/1/2013 1632.97 -3.13%
8/31/2013 1.72092
13.57
% 9/1/2013 1681.55 2.97%
9/30/2013 1.85622 7.86%
10/1/201
3 1756.54 4.46%
10/31/201
3 1.76212 -5.07%
11/1/201
3 1805.81 2.80%
11/30/201
3 1.77068 0.49%
12/1/201
3 1848.36 2.36%
12/31/201
3 1.77923 0.48% 1/1/2014 1782.59 -3.56%
1/31/2014 1.822 2.40% 2/1/2014 1859.45 4.31%
2/28/2014 1.90754 4.69% 3/1/2014 1872.34 0.69%
3/31/2014 1.93078 1.22% 4/1/2014 1883.95 0.62%
4/30/2014 2.02645 4.95% 5/1/2014 1923.57 2.10%
5/31/2014 1.98297 -2.15% 6/1/2014 1960.23 1.91%

4INTRODUCTION TO ACCOUNTING AND FINANCE
6/30/2014 1.97426 -0.44% 7/1/2014 1930.67 -1.51%
7/31/2014 2.10472 6.61% 8/1/2014 2003.37 3.77%
8/31/2014 2.17431 3.31% 9/1/2014 1972.29 -1.55%
9/30/2014 2.16513 -0.42%
10/1/201
4 2018.05 2.32%
10/31/201
4 1.90001
-
12.24
%
11/1/201
4 2067.56 2.45%
11/30/201
4 2.14745
13.02
%
12/1/201
4 2058.9 -0.42%
12/31/201
4 2.06792 -3.70% 1/1/2015 1994.99 -3.10%
1/31/2015 2.62467
26.92
% 2/1/2015 2104.5 5.49%
2/28/2015 2.62467 0.00% 3/1/2015 2067.89 -1.74%
3/31/2015 2.49948 -4.77% 4/1/2015 2085.51 0.85%
4/30/2015 2.59803 3.94% 5/1/2015 2107.39 1.05%
5/31/2015 2.1053
-
18.97
% 6/1/2015 2063.11 -2.10%
6/30/2015 2.18593 3.83% 7/1/2015 2103.84 1.97%
7/31/2015 1.97092 -9.84% 8/1/2015 1972.18 -6.26%
8/31/2015 1.77383
-
10.00
% 9/1/2015 1920.03 -2.64%
9/30/2015 2.09397
18.05
%
10/1/201
5 2079.36 8.30%
10/31/201
5 2.19455 4.80%
11/1/201
5 2080.41 0.05%
11/30/201
5 2.19455 0.00%
12/1/201
5 2043.94 -1.75%
12/31/201
5 2.07567 -5.42% 1/1/2016 1940.24 -5.07%
1/31/2016 2.08482 0.44% 2/1/2016 1932.23 -0.41%
2/29/2016 2.19241 5.16% 3/1/2016 2059.74 6.60%
3/31/2016 2.35288 7.32% 4/1/2016 2065.3 0.27%
4/30/2016 2.23004 -5.22% 5/1/2016 2096.95 1.53%
5/31/2016 2.08831 -6.36% 6/1/2016 2098.86 0.09%
6/30/2016 2.40958
15.38
% 7/1/2016 2173.6 3.56%
7/31/2016 2.40013 -0.39% 8/1/2016 2170.95 -0.12%
8/31/2016 2.20169 -8.27% 9/1/2016 2168.27 -0.12%
9/30/2016 2.14257 -2.69%
10/1/201
6 2126.15 -1.94%
10/31/201
6 2.26747 5.83%
11/1/201
6 2198.81 3.42%
11/30/201 2.34434 3.39% 12/1/201 2238.83 1.82%

5INTRODUCTION TO ACCOUNTING AND FINANCE
6 6
12/31/201
6 2.20982 -5.74% 1/1/2017 2278.87 1.79%
1/31/2017 2.21943 0.43% 2/1/2017 2363.64 3.72%
2/28/2017 2.45963
10.82
% 3/1/2017 2362.72 -0.04%
3/31/2017 2.57032 4.50% 4/1/2017 2384.2 0.91%
4/30/2017 2.58009 0.38% 5/1/2017 2411.8 1.16%
5/31/2017 2.58809 0.31% 6/1/2017 2423.41 0.48%
6/30/2017 2.61761 1.14% 7/1/2017 2470.3 1.93%
7/31/2017 2.47984 -5.26% 8/1/2017 2471.65 0.05%
8/31/2017 2.43064 -1.98% 9/1/2017 2519.36 1.93%
9/30/2017 2.51 3.27%
10/1/201
7 2562.1 1.70%
Rf = Risk free rate = 2.76%
Rm = Market risk premium = 5.5%
Thus, ke = 2.76 + 1.42 (5.50 – 2.76) = 6.65%
2. Financial performance analysis for Qube Holding
 Revenue – the revenue of the company for the year ended on 30th June 2017 amounted
to $ 1512.80 million which is in increasing trend from the year closed on 30th June
2016 as the amount for that date was $ 1,332.50 million. Therefore, it can be
identified that there is 14% increase in the revenue as compared to the previous year
(Qube.com.au, 2017).
 Earnings - the earnings of the company for the year ended on 30th June 2017
amounted to $ 77.3 million which is in decreasing trend from the year closed on 30th
June 2016 as the amount for that date was $ 92.50 million. Therefore, it can be
identified that there is 16% decrease in the earnings as compared to the previous year.
 EPS – as the earnings were in decreasing trend, the earning per share of the company
was also in decreasing trend. The EPS of the company for 2016 accounting period
was 7.2 cents whereas, the same reduced to 5.4 cents for the accounting year ended
2017 (Qube.com.au, 2017).
 Dividend – the company paid the final dividend for the year ended on 30th June 2016
was 2.8 cents per share that was paid 11th October 2016 and the interim dividend paid
for the year ended on 30th June 2017 on 5th April 2017 of 2.7 cents per share.
 Growth expectation –

6INTRODUCTION TO ACCOUNTING AND FINANCE
The strong balance sheet with the low gearing position and diversified source of
funding put the company in a better position for the continuous growth for the future years.
The strong earnings and revenues from port division and logistics are also forecasting the
future growth of the company. Further, the successful completion of wide range of the
funding initiatives assures that the company has strong funding structure and capacity for
supporting the continuous growth for the business in the long run.
3. Company’s stock valuation
Comparable approach – the comparable approach compares the value of the company’s stock
with its competitors. Various methods like dividend growth model and P/E approach can be
used for the purpose of comparing.
 P/E approach –
Company P/E 2017 P/E 2018 P/E 2019
Qube Holding 45.42 32.56 29.94
Macquarie infrastructure group 46.22 35.51 31.29
Westlink Logistics 32.45 24.87 21.39
From the above table it can be recognized that the forecasted P/E ratio for the next
year for Qube Holding is lower as compared to Macquarie group, however, it is better as
compared to Westlink Logistics (Investsmart, 2017).
 Dividend growth model -
Company Dividend yield 2017 Dividend yield 2018 Dividend yield 2019
Qube Holding 2.17% 1.94% 2.04%
Macquarie
infrastructure group
4.23% 3.29% 3.81%
Westlink Logistics 1.29% 1.55% 1.81%
From the above table it can be recognized that the forecasted dividend yield for the
next year for Qube Holding is lower as compared to Macquarie group, however, it is better as
compared to Westlink Logistics (Investsmart, 2017).
4. From the above table, it is recognized that the P/E approach is more suitable for
comparing the value of the stock as the dividend is paid on the discretion of the

7INTRODUCTION TO ACCOUNTING AND FINANCE
management. it does not reveal the profitability position of the company. On the other
hand, the profitability of the company can be analysed through the P/E approach.
5. In addition with the dividend growth and P/E approach, the other information that can
be used for comparable analysis are market capital, DPS, EPS, growth rate of the
company.

8INTRODUCTION TO ACCOUNTING AND FINANCE
Part III – Cost of capital
1. Calculation for WACC
Net debt = $ 801.9 million
Shareholder’s equity = $ 2,612.6 million
Weight of debt = 23%
Weight of equity = 77%
WACC after tax –
WACC = wd (cost of debt after tax) + we (cost of equity)
= [(1-0.30)*(0.23*5)] + (0.73*6.65)
= 5.66%
2. For the computation of weighted average cost of capital the effective rate of tax was
30%.
3. Cost of the debt and cost of the equity difference
The debt is normally raised from the banks or the financial institutions and the amount
is repayable with the interest on periodic basis. The debt carries various risks like credit risk,
market risk and interest risk. On the other hand, equity is raised through share issuance and
the payment is made to the investors based on the profitability level of the company (Valta,
2016). The main advantage of debt is that it is tax deductible but at the same time it involves
more risks.
4. As the current obligations or liabilities are deductible expenses under tax, it shall be
included while calculating the cost of the capital. However, the main issues with
including the current liability are that it increases risk in the capital structure.
5. In the computation for WACC, the main component was the equity part as it comprise
of 73% of total capital structure. As the debt part is lower as compared to the equity
part, it represent that the company is low leveraged and financially stable and strong.
This strong position will influence the investor to invest their money in Qube Holding
Limited.

9INTRODUCTION TO ACCOUNTING AND FINANCE
6. Two major investment decision of the company are – (i) Qube Holding completed
acquisition of 50% interest in a company named Patrick on 18th august 2016 and (ii)
undertaken some new campaign in the existing market.
7. The debt equity structure of the company is 23:77 which is not complied with the
industry standard as the ratio of 1:2 is regarded as ideal capital structure for any
entity. Therefore, for any further investment or business operation the company has
scope to obtain some more amounts through debt.
8. The optimal capital structure is regarded as the structure of equity and debt at which
the company is able to optimize its return with minimization of cost. The changes in
the optimal structure have direct impact on the weighted average cost of the capital as
more debt will increase the risk component (Della Seta, Morellec & Zucchi, 2015).

10INTRODUCTION TO ACCOUNTING AND FINANCE
Part IV – Analysis of the market
1. Company’s financial performance
As per Simplywall.st, the growth prospect of Qube Holding is forecasted as good over
the future years. 50.1% growth is estimated nd forecasted for the EPS that will be ranged
from $ 0.08 to $ 0.19.
During same period the revenue are expected to grow to $ 1,474 million from $ 1,286
million till the year 2020 and the profits of the company are forecasted to reach $ 178 million
from $ 82 million till the year 2020 (Canly & Canly, 2017).
2. Financial analyst’s report
As per the financial analyst, Qube Holding is underperforming since last few years in
the transportation industry. The return on equity of the company at 5.2% leaves the company
at a position where lot more can be expected as it is far behind the industry average of
11.22%. This low level of performance will not influence the investors to invest their money
in this company (De Fiore & Uhlig, 2015).

11INTRODUCTION TO ACCOUNTING AND FINANCE
Yes, I have the same opinion as the financial analyst’s report as the facts focussed by
the analyst can be conformed from the financial statement and market analysis of the
company.
3. The item that is different about the company is that though the performance of the
company is stable, it is lower as compared to the industry average.

12INTRODUCTION TO ACCOUNTING AND FINANCE
Reference
Canly, M., & Canly, M. (2017). Qube Holdings Limited (ASX:QUB): Is it a good long term
opportunity?. Simply Wall St. Retrieved 21 October 2017, from
https://simplywall.st/news/2017/02/22/qube-holdings-limited-asxqub-is-it-a-good-
long-term-opportunity/
De Fiore, F. & Uhlig, H., (2015). Corporate debt structure and the financial crisis. Journal of
Money, credit and Banking, 47(8), pp.1571-1598.
Della Seta, M., Morellec, E. & Zucchi, F., (2015). Debt structure, rollover traps, and default
risk. Working Paper.
InvestSMART. (2017). Qube Holding Limited. [online] Available at:
https://www.investsmart.com.au/shares/asx-bkl/qubeholding-limited [Accessed 21
Oct. 2017].
Qube.com.au. (2017). Qube infrastructure and logistics - Australia's most trusted. [online]
Available at: https://www.qube.com.au/ [Accessed 21 Oct. 2017].
Valta, P., (2016). Strategic default, debt structure, and stock returns. Journal of Financial and
Quantitative Analysis, 51(1), pp.197-229.