Australia | Aug 23 2006
By Rudi Filapek-Vandyck
Core markets for the likes of Macmahon (MAH), United Group (UGL), Downer EDI (DOW), Coates Hire (COA) and Worley Parsons (WOR) – all benefiting firmly from a strong capex cycle in resources and infrastructure – should continue for at least another two, possibly three years. It is a view that many a securities analyst subscribes to, and Peter Russell at Intersuisse is no exception.
Russell has used the latest earnings release by engineer Monadelphous (MND), which he describes as "strong", to reiterate his positive view. Intersuisse remains positive on Monadelphous, with Russell stating "strong and high quality workload can be expected to deliver further revenue and earnings growth in FY07".
The view extends well beyond Monadelphous, with Russell putting forward that growth for companies such as the aforementioned ones, has a strong correlation with project timing and industry capacity constraints.
This is actually a good thing, the analyst offers, as it implies that increasing evidence of skills shortages and severe cost over-runs will continue to defer and reduce project development workloads. As this will bring demand more in line with supply and in doing so effectively extends the current growth cycle, Monadelphous et al are poised to enjoy a "stronger for longer" scenario.
Intersuisse agrees the company is likely to continue enjoying strong growth in the meantime, noting management again flagged the possibility of a special dividend for FY07.
According to the broker’s current expectations, the company’s profits should grow from $29.4m in FY06 to $41.0m in FY07, to $48.0m in FY08. IN EPS terms this becomes 47.5c in FY07 to 54.5c in FY08 (35.3c in FY06). The company pays out fully franked dividends and, excluding any specials, is expected to pay out 40.0c in FY07 and 46.0c in FY08 (33.0c in FY06). This implies the shares are also attractive from a dividend yield perspective, putting them on a yield of 6.1% and 7.0% for FY07 and FY08 respectively.
If Thomson One data is of any guidance, Intersuisse is far from the only one with a positive view on the company’s near term outlook. Thomson One’s consensus forecast for FY07 EPS is 46c, but expectations run as high as 51c. Expectations for FY08 EPS range from 49c to 56c.
Today’s surge takes the share price above the median price target of $6.61 and that could be a short term negative.
Monadelphous shares are up more than 2% at $6.67 close to 1:30pm on Wednesday.