• Watch our recent video insight with David and Damon Ficklin from Polen Capital as they give some insight into the strategy behind the Polen Capital Global Growth Fund here

ValueLine: Infrastructure

ValueLine: Infrastructure

Will the infrastructure stocks sold off in favour of QR National present any bargains? Roger Montgomery digs deep into the transport and infrastructure sector in search of a bargain. Read Roger’s article at www.eurekareport.com.au.


Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

Why every investor should read Roger’s book VALUE.ABLE


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  1. Thanks for the reply Roger, I am a big fan of reh how big of an impact do you think wow hardware business will have on them? And could you please post your value for reh so I can compare right Now I have $19 – $21.11 depending on my discount. Thanks

    • Hi Rowan,

      Regarding Reece, I have $18.33 for the 2011 valuation and rising to $20.61 for 2012. Its an A2. I hope that helps and please be sure to seek and take personal professional advice.

  2. hi roger
    would like to talk valuation methods, wouldn’t a very modest dcf be better than basing your investment on roe because roe is the return on the first person’s equity in the business not the return your going to get on your money.

    thanks in advance

      • Rowan, i use a DCF with owners earnings, ive looked at rogers valuations and found them to be relative in value. i.e. a few months back he said anz was the cheapest out of the 4 banks and my valuations agreed etc. However its kind of obvious when something is cheap if you know what i mean. Roger take a look at TFS (TFC) i bought it at 0.875, my valuation is far higher than this number.

  3. Hi Roger
    Most Infrastructure Companys carry large Debt so would not pass my 1st hurdle.
    I noted that Warren Buffet has found the traditional debt-to-equity ratio for ascertaining the finacial strength of a company to be a poor measure of the financial power of a business. This is because a company’s assets are never a source of funds for retiring long-term debt unless the company is in bankruptcy. Banks loan money on the ability to pay the interest on the debt. Any equity in the company is merely a safety net for the loan. The ability to use its Cash Flow to service and pay off the loan is far more inportant than the assets backing up the loan He has also found that most Capital Equipment is so unique to that business that in truth it is worthless to anyone else. Even though it might be carried on the books at considerable value.So the best test is its ability to service and pay off debt out of its earnings So a Company with the ability to pay all its debt if no distrubutions are made in 4-5 years is prefered.This does not apply to Banks or Financial Companys.
    Not many Infrastructure Companys can pass this requirement.

    Going back to QR National, a lot of the tracks are single tracks so real value would be hard to achive. No money has been spent for years only repairs and it would require upgrading, also being a Queensland Goverment run system, like its Health, its management might be brain dead.
    If you buy a share in it you are also suppied with the existing management. i think.

    • Hi Ken G,

      Financial stability and financial power are two different things and debt/equity is not an input into the latter although it will determine where the proceeds of any earnings power go. Your comment about assets are right and more acute when high levels of goodwill are on the balance sheet (see page 160 of Value.able). You might to also read my comments about calculating cash flow. Positive cash flow after the servicing of debt and its proportion is vital in the identification of quality companies so we are in agreement here. Thanks for your thoughts about QR National.

      • thanks for your reply and the correction of my mistake, Have gone back to work on Cashflows.I’m currently setting up a spreadsheet with all the relevent infomation which includes IV calculations,book value, ROE, ROA as well as other infomation so if i find the company does not achive up to a standard over time i won’t make the same mistake again.

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