Australia | Jun 26 2007
By Chris Shaw
As the commodity cycle stays stronger for longer the need for workers at the various mining operations around Australia also grows, meaning there is an ever-increasing demand for accommodation for the mining workforce in what are often very tough environments.
Fleetwood Corporation (FWD) has long been seen as a market leader in this field but since listing in 2006 Nomad Building Solutions (NOD) has emerged as a legitimate alternative given it services clients such as BHP Billiton (BHP), Woodside (WPL) and Newcrest Mining (NCM). In the view of Shaw Stockbroking the company currently offers more upside than its larger rival.
The broker rates the stock as a Buy to reflect this stronger growth profile, noting the company already has well over half of its FY08 revenues locked in, Merrill Lynch noting this compares with just 20% at the same time last year.
Both brokers also see potential for margins to continue to increase, an expansion of the margin outlook being a major factor behind last week’s upgrade by management of earnings guidance for FY08.
The company now anticipates profit of $20-21m next year, which compares to Merrill Lynch’s forecast of $16.3m this year, in FY08 of $21.4m and in FY09 of $26m. ABN Amro in contrast is at $20.1m in FY08, having lifted its estimate by 6% and in FY09 by 3% following the update.
Earnings risk remains to the upside according to Merrill Lynch given so much of next year’s revenue is already secured, Shaw also pointing out with gearing at only 30% there is scope for further accretive acquisitions. In addition it notes the company is set to invest $20m in hire products by the end of next year, which offers a potential additional revenue stream.
In earnings per share terms Merrill Lynch forecasts 14.5c this year, increasing to 18.4c in FY08 and 22.4c in FY09, which it suggests supports a valuation of $3.01. This is up from $2.53, the broker lifting its price target as a result to $3.00 from $2.50. Little surprise then the broker also rates the stock as a Buy.
ABN Amro is similarly positive with its rating, having also increased its valuation and price target from $2.63 to $2.94. At current levels it suggests the stock is good value relative to its peers, estimating it is trading on 14.5x earnings, compared to a peer average of 14-19 times.
Shares in Nomad have traded in a range of $134-$2.72 over the past 12 months, while today in a flat market the stock is unchanged at $2.62. At this price the company is capitalized at just over $305m, though to date only ABN Amro and Merrill Lynch among brokers in the FNArena database actively cover the stock.