Australia | Aug 25 2006
By Chris Shaw
Maxitrans (MXI) has had a disappointing six months or so, the shares falling from levels of around $1.00 earlier this year to just over half that following a profit warning in June.
But Austock Securities sees some potential for a turnaround in the stock, as it takes the view the worst may now be behind the company following problems in its Tipping, Trailers and Vans and Parts divisions, which resulted in the company reporting a profit result of $10.9m, which was down 10% from the previous corresponding period.
The broker suggests this should prove to be the bottom for earnings, as moves to enhance the contributions from both divisions have been put in place and should begin to produce benefits, while the completion of a management restructuring should allow for better focus on generating improved returns.
Cost reductions are a likely short-term source of improvement, while gains in market share from an already strong position and the potential for further industry rationalisation also offer a longer-term boost. Despite this, Aspect Huntley cautions higher fuel prices and interest rates and a weak housing market will limit the upside in the short-term.
Austock is forecasting underlying profit in FY07 of $11.9m, increasing to $12.7m in FY08, which translates to earnings per share of 6.7c and 7.2c respectively. Aspect Huntley’s estimates are similar at 6.4c and 7.6c, though it sees less potential for a share price turnaround.
In its view the market will want to see more evidence the strategies to lift performance are working before the stock can return to favour, so despite the share offering value at current levels it sees little upside this year.
Fundamentally the stock does look reasonably priced, as on Austock’s earnings estimates it is trading on a forward price/earnings ratio of 8.3x in FY07 and 7.8x in FY08. This is matched by a yield of 8% and 8.5% respectively, so investors can potentially afford to wait for performance to improve.
Austock has a target price on the shares of $0.70 to go with their Buy rating, while Aspect Huntley rates the stock as Hold. Maxitrans shares this morning have risen slightly, at 11.00am the stock was up 0.5c at 55.5c.