David French | 20/10/2010 2:55:01 PM

This article was first published in The Morning Bulletin under the heading QR1 dated 16 October 2010.

QR is an iconic asset. It is generally well run and extremely well maintained. Loosening the constraints of Government by bringing the business into a private enterprise environment is likely to be very beneficial, but whether to buy it all depends on the price. Pricing isn’t known yet, but it’s likely the government will want to ensure that investors receive an attractive return early on.

While price seems like a simple concept, a sensible price depends on many factors. For example: • Asciano (which owns Pacific National) has been aggressively pitching for, and winning, coal haulage contracts in Queensland. At the same time QR has been successful in spreading its wings beyond Queensland – especially in WA and to a lesser extent in the Hunter Valley. • The deal includes the track. That’s likely to make the asset much more valuable to shareholders, if not society in general. • Can the company successfully migrate from a State owned asset to public life? Commonwealth Bank, Qantas and CSL made the grade, but Telstra has not. • My understanding is that QR is very much about managing costs - it hasn’t been strongly focussed on growing revenue. Doing both well represents quite a change in mindset – in particular with regard to freeing up and creating capacity. Interestingly, many of QR’s customers are big corporates, so QR must already have some commercial savvy to be able to interact successfully with them. • QR provides an indirect exposure to the resources boom. The company has a high level of fixed assets and is likely to be very sensitive to changes in volumes of coal especially. If the boom continues and volumes grow, it will likely perform very well. A drop off in volumes would be expected to hit QR pretty hard. It will also be interesting to see what concessions QR has to give to non-profitable Community Service Obligations, like passenger trains.

Potentially QR could be a core component of a larger portfolio, but if you are new to the stockmarket, remember that stock prices can go up and down, and that you have to be comfortable with these movements. If the market corrects downward, you can be sitting on a paper loss for a while. You might get a regulatory decision that goes against QR, or they might lose business to Pacific National. One punch don’t make a fight, but you gotta roll with them.

The Investment Collective (AFSL 471728) is a non-aligned financial planning and investment firm specialising in providing tailored financial and investment advice for individuals and small business. Capricorn Investment Partners Limited's services include financial planning, share trading, portfolio management, insurance broking and self managed super fund administration. Additional information on services provided by The Investment Collective Limited can be found by following this link. Readers are reminded that this document has been prepared for general information purposes only, and any advice contained herein has been prepared without taking into account your financial objectives, situation or needs. Readers are advised to see their financial advisor prior to acting on any general advice.