Australia | Oct 24 2006
By Chris Shaw
Annual general meetings are usually not the most interesting events but they at least provide investors with some insight as to how the company is travelling in the early stages of the financial year.
One to report the year has started strongly is SMS Management & Technology (SMX), the largest management services company in Australia. At the AGM yesterday management advised revenue, earnings before interest, tax, depreciation and amortisation (EBITDA) and staff numbers were all trading above budget, setting the company on course to generate EBITDA at least 25% higher than in the previous corresponding period.
Credit Suisse suggests the meeting guidance supports its estimate of an increase for the full year of 33.5% (significantly above guidance) as the company continues its program of leveraging its core business into providing a broader range of services.
Fitting this strategy in the broker’s view is the acquisition of RealTech, Merrill Lynch noting while the acquisition is small it offers the company entry into the Enterprise Resource Planning (ERP) solutions market and so provides a good fit with the company’s existing operations.
Merrill Lynch is not as aggressive in its forecasts as Credit Suisse though it has lifted them following the AGM, the broker forecasting a full year increase in EBITDA of 24% compared to a consensus estimate of a 20% increase. The broker is targeting earnings per share of 23.3c in FY07, 26.3c in FY08 and 29.7c in FY09, against the Credit Suisse estimates of 23.8c, 31.6c and 40.3c.
Credit Suisse’s Buy rating reflects not only this strong growth but the potential for further upside, as it notes the company is also looking to expand via growth in customer relationship management and systems engineering as well as enterprise resource planning through the RealTech purchase. It suggests such growth is likely to come via further acquisitions, offering upside risk to its earnings growth estimates.
Not surprisingly both Credit Suisse and Merrill Lynch rate the stock as Buy, while the FN Arena database shows a total of three Buy ratings and one Sell recommendation. The average share price target is $3.81, up from $3.67 prior to yesterday’s meeting.
Thomson One Analytics shows a median price target of $4.40, while its shows median earnings per share estimates on a fully reported basis of 22c in FY07, 27c in FY08 and 32c in FY09.
SMX shares are stronger today, as at 2.50pm the shares were trading 8c higher at $4.32.