Australia | Mar 05 2007
By Chris Shaw
A significant fall in net profit is usually not associated with an upgrade in recommendation but Austock Securities has taken such an approach with Maxitrans Industries (MXI), lifting its rating to Buy from Hold despite the company’s profit falling to $3.5m from $5.4m in the previous corresponding period.
The broker notes there are reasons earnings were lower, including the impact of higher petrol prices, the drought, interest rate concerns and some underperforming operations, the last being something management has some control over and has moved to address in recent months.
The other factor impacting on earnings was the decline in orders at the company’s Ballarat operations, where demand fell to around 120 units from record levels of 180-200 units a month previously, the fall coming so fast the company was unable to cut its costs at the same rate.
There is some scope for improvement though as the broker notes orders are again trending up towards previous record levels, so the operations are again being scaled up. This suggests there is potential for some improved performance from the company’s tippers, trailers and vans operations.
It is a view shared by Aspect Huntley, who also regards the pick up in orders as an encouraging sign but suggests caution given volatility remains. Austock downplays the volatility issue somewhat, suggesting with the new order book in the division now out to more than 12 weeks there is greater certainty in its earnings forecasts, justifying a more optimistic outlook.
Regardless, both have retained their full year earnings forecasts, with Austock at $10.1m and Aspect Huntley at $11.0m, rising in FY08 to $11.6m and $13.9m respectively.
The two have similar dividend estimates at 4.3c this year and 4.5c next year, which suggests yields of 6.2% and 6.6% and provides some attraction to investors. The greater confidence in earnings forecasts at Austock has seen the broker lift its valuation to $0.80 from $0.62, while Aspect Huntley values the stock at $0.67.
At current prices the company has a market capitalisation of around $115m, so it receives little coverage in the market. The FNArena database shows Merrill Lynch was the only other broker to research the stock and rated it as a Buy, though this dates back more than a year so may not be current.
Shares in Maxitrans are weaker today in line with the broader market, as at 10.45am the stock was down 3.5c at $0.65, which compares to a range over the past 12 months of 44.5c to 95c.