Kelsian Shares Drift Back Toward Our Fair Value Estimate

Kelsian is one of the biggest operators of metropolitan bus services for state governments throughout Australia. It also runs private-sector transportation services for Australian resource companies and in the education space. Public transport service contracts are typically long-term, averaging 6-10 years. Under the contracts, revenue is not linked to the number of patrons or the fares they pay, and indexation mechanisms compensate the operator for fuel, wage, and Consumer Price Index increases. Given that the majority of Kelsian’s revenue is contracted, the group’s earnings are highly defensive, albeit subject to periodic renewal risks.