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Patrick Corporation proves its worth

WITH this, my last weekly column, I would like to analyse a company not based in WA that has performed exceptionally and is expected to continue that trend over the medium term.

The company was formerly named Lang Corporation and was embroiled in the waterfront dispute with the maritime union three years ago. The company moved through that dispute with exceptional efficiencies and has now branched out into other sectors.

The company’s share price has firmed from $2 per share in mid-1998 to around $15.90 lately. This has been a phenomenal performance and one that will be difficult to repeat. Basically, the original investors in this company have done remarkably well but they also took on all the risk, especially in the harrowing days of the waterside dispute.

The original investors include Peter Scanlon, a business associate of John Elliott from the old Elders IXL days. He is the biggest single shareholder in the company and has increased his wealth markedly from this investment. The other major player in the company is managing director Chris Corrigan, who has been the public face of the company in all its deals.

Mr Corrigan is a former director of BT Australia (when it was in its glory days) and has significant financial market and political contacts. He has proved to be an adept deal maker, with three particular deals that should set Patrick Corporation up for significant growth in the future.

The deals have involved the reorganisation of the waterfront, which has improved returns to its stevedoring business markedly and a ‘visionary’ type deal with freight business company Toll Holdings, under which both companies share the potential fruits of the rail freight industry.

The rail freight business is currently undergoing a transformation, with rail a long forgotten means of freight transport in Australia. Rail is a very underutilised resource in Australia, especially for freight, with the international experience being the opposite. Rail freight is a very efficient way of transport in other countries, and Toll Holdings and Patrick Corporation see huge upside in this business.

The most interesting deal involving Patrick Corporation is the most recent one. In March, Patrick Corporation announced that it had signed an agreement with Virgin Blue to acquire 50 per cent of the airline in Australia. This is significant, as it may lead to air freight in the future.

Since the demise of Ansett, air freight has been dominated by Qantas. The opportunity exists for another player to emerge in this industry, with Ansett a note market leader in the business previously.

If Patrick Corporation can evolve into a diversified freight business company with tentacles stretching to rail, air and stevedoring, the upside is obvious. The business synergies are evident, with duopolies existing in all industries. Duopoly businesses thrive in Australia generally, and Patrick Corporation will be ideally placed for any business.

The company recently completed a placement, raising $260 million at $14.90 a share, which was oversubscribed five times. This is a good indication of the support that Patrick Corporation has in the share market, and the support Mr Corrigan has for his story.

This stock is a classic growth story, with significant re-rating to come when the company delivers on its promises.

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