JV Results Suggest An Opportunity In Cabcharge

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By Chris Shaw

After announcing its profit result in August shares in Cabcharge ((CAB)) have trended lower, falling from more than $13.00 per share to less than $10.00 as the market took the view the company’s earnings growth would slow in coming years.

The downtrend may soon reverse according to Credit Suisse, the broker noting an update on the group’s bus and UK taxi joint ventures for the September quarter was quite positive and while growth would be lower than the 35% achieved in FY07 it should support an increase for the year of something in the order of 20%

Assuming the February interim result is a solid one it would mark the fourth such solid result in a row, the broker suggesting this would be enough to see the stock begin to trade back up towards its previous highs.

JP Morgan agrees and has upgraded its recommendation on the stock to Overweight from Neutral on the back of modest increases to its earnings forecasts following a meeting with management.

The broker has lifted its forecasts for both the joint ventures and the company’s core payment system operation, the end result being a 3% increase in its FY08 EPS (earnings per share) estimates to 52c, while it is forecasting 60c in FY09, estimates that are broadly in line with the forecasts of Credit Suisse. This compares to the 45.1c achieved in FY07.

Deutsche Bank is forecasting EPS of 60c in FY08 and 69c in FY09 but sees scope for these estimates to be a touch on the light side following the company’s update as the $10m in incremental revenue achieved by the bus joint venture generated an EBIT (earnings before interest and tax) margin of 35%, well above the FY07 margin of closer to 20%.

If this were to continue for the full year it would imply increases to consensus estimates in the market.

Despite the share price weakness of recent months the stock remains well supported in the market as the FNArena database shows five Buys and one Accumulate rating compared to three Hold recommendations. The average share price target is $11.94, up from $11.76 prior to the update. The change comes mainly from JP Morgan lifting its target price to $11.60 from $10.15.

Thomson One Analytics shows a median price target of $11.70, which is based on median EPS forecasts of 52c and 59c for FY08 and FY09.

Shares in Cabcharge are stronger this morning and as at 11.20am were up 21c or 2.1% at $10.45.

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