Aurizon's network review is settled, but fund managers remain split on value

Aurizon Holdings has spent the past year fielding one of the more contested debates on the ASX: is Australia's largest rail freight operator a materially undervalued infrastructure asset, or a business facing real contract-renewal and commodity risk that the market has not yet priced in?

L1 Capital, Aurizon's largest shareholder, used a Presentation in July 2026 to restate why it keeps buying. The manager said Aurizon controls critical infrastructure assets that will not be able to be replicated, singling out the rail network connecting mines in central Queensland to ports on the eastern seaboard as the standout asset, with about 70% of volume met coal used for steel production and 30% thermal coal.

L1 Capital said it was pleased the Aurizon board had recently announced a review of the ownership structure of the network business, and pointed to two operational catalysts: $50 million of savings from a 200-person workforce reduction in place from 1 July, and a new contract with BHP to transport product from its Olympic Dam operations in South Australia. While the earnings contribution today is modest, the manager said it is a strategically significant win because it aligns with BHP's broader ambition to grow Olympic Dam beyond 2030, calling it a stepping stone that could lead to expanded bulk haulage opportunities more generally with BHP.

The network business: kept, not sold

That Olympic Dam contract has been a recurring thread in the bull case since mid-2025, but the bigger swing factor for the stock has been what happens to the regulated Network division, which several managers estimate represents more than half of Aurizon's earnings and value. Pendal Group said in a Newsletter in February 2026 that the company had decided to retain 100% of Network and there will be no transaction post the asset review, alongside 4% consensus EPS upgrades after the 1H FY26 result beat at EBITDA by 4%.

Pendal was not uniformly positive, however, flagging that Aurizon is at risk of losing material volumes in New South Wales to Pacific National, as well as a rebase of the revenue top-up in the Network business, and noted the company also faces recontracting risk for 50% of its above-rail coal contracts in Queensland, with the profile of earnings showing no growth over the next few years.

L1 Capital's own read of the network review was more constructive. In a Quarterly Report in March 2026, the manager said Aurizon had confirmed a 10-year extension to its regulatory arrangements with miners for access to the Queensland rail network, subject to Queensland Competition Authority approval, which it said enhances long-term earnings and cash-flow certainty for the Networks business.

A dividend payout lifted to 90%, and a split market view

Alongside the network decision, Aurizon has leaned harder into capital returns. Endeavor Asset Management said in a Monthly Report in February 2026 that Aurizon's 1H26 result showed NPAT of $237 million, up 16% year-on-year and around 10% ahead of consensus, with management lifting the dividend payout ratio to 90% and, combined with $250 million of buybacks, offering an estimated distribution yield of 8% in FY26 and 10% in FY27.

Endeavor said it remained reluctant to extrapolate the strong performance coming from Aurizon's coal exposure, noting the earnings outlook depends on the company winning back lost coal volumes and continuing to improve its containerised freight offering.

That split between bulls and sceptics played out openly in March 2026, when two managers gave opposing calls on the same Article. Plato Investment Management said it's a buy for us at the moment, describing Aurizon as one of those mining service contractors, though probably not our favourite, and noted that despite challenges recontracting coal volumes, the stock is on a decent yield that looks good value and is forecast to grow at mid-single digits over the next couple of years.

Perpetual Asset Management took the other side, saying sell, and argued the concern is less the below-rail coal business, which it called a high quality asset, and more the roughly 50% of above-rail coal contracted volumes up for expiry over the next two years in a competitive environment, plus the still-unproven One Rail bulk acquisition, concluding that given that early question mark, a bit of leverage on the balance sheet and a pretty full payout ratio, it's a sell.

Positioning has shifted through 2026

Several managers have trimmed or exited positions even while broadly constructive on the business. Ellerston Capital said in a Monthly Report in February 2026 that it took profits in Aurizon post-result and its rapid share price appreciation. Investors Mutual Limited said in a Quarterly Report in June 2026 that it trimmed its Aurizon position as it appreciated in value, as part of a broader trim alongside Telstra, while Argo Investments said in a Presentation in May 2026 that it doesn't think there's anything wrong with those businesses at all, they've done really well, we still see good pathway of growth, and used some of the position as funding for other purchases.

Allan Gray went further, saying in an Article in April 2026 that in the midst of recent market turmoil it sold its Aurizon shares, which it had bought around 18 months earlier at peak disappointment over the bulk strategy, redeploying the capital into a next set of uncomfortable, beaten-down stocks as a contrarian move.

The long-term case L1 Capital keeps making

Through all of that, L1 Capital has continued to add. In a Presentation in June 2026, the manager said around 60% of its Aurizon valuation is underpinned by the regulated rail network, describing it as one of the few large-scale listed transport infrastructure assets in Australia, and pointed to new customer wins including the BHP copper railings ramp-up in South Australia and resource projects near its network including the Arafura and Nolans Bore rare earth project.

L1 Capital also pointed to reducing growth capex requirements as the platform for Bulks, Containerised Freight and Land-Bridging investment tapers off, arguing that improving free cash flow should underpin sustained dividends and potential further capital returns.

What managers are watching next

With the network ownership review resolved in favour of retaining the asset, the 10-year Queensland rail access agreement extension progressing through regulatory approval, and the BHP Olympic Dam and copper contracts still in early ramp-up, the managers who remain positive on Aurizon, led by L1 Capital, say the next tests are whether the company can defend its above-rail coal contracts as they come up for renewal, and whether the Bulks and Containerised Freight segments can finally deliver the returns the market has been waiting for since the OneRail acquisition.