Australia | Dec 04 2007
By Chris Shaw
Having traded at more than $14.00 per share around the middle of this year shares in waste management group Transpacific Industries ((TPI)) have struggled, falling to around $11.00 as investors concerned themselves with group debt levels following a number of acquisition including Cleanaway in New Zealand.
Some of those fears have now been laid to rest as management yesterday advised the market its $2.35 billion syndicated debt facility has been successfully underwritten. At the same time it reiterated earnings guidance for the full year of $175-$185 million, which is in line with the earnings forecast of UBS.
The broker rates the stock as Buy, suggesting with the refinancing out of the way investors will again be able to focus on the potential for management to create value from integrating its recent acquisitions and from further possible expansionary moves.
The broker estimates if additional bolt-on acquisitions totalling around $100 million were made this year at historical average multiples of 4-6x EBITDA (earnings before interest, tax, depreciation and amortisation) it could add as much as 1.1-4.9% to its EPS (earnings per share) forecast.
A larger, equity funded acquisition would also be earnings positive on the broker’s numbers as long as the company didn’t pay more than 11x in EBITDA terms, so there is some upside scope for earnings in its view. Management’s guidance also supports the potential for upside as the target is for 15% organic growth and 15% acquisition growth annually.
This suggests the broker’s forecasts may be a little light as currently it is forecasting EPS of 62c in FY08 and 70c in FY09. Deutsche Bank is a little more conservative with its forecast of 57c this year but sees further upside in FY09 and forecasts EPS in that year of 72c. Thomson One Analytics shows median EPS forecasts of 62c this year and 73c in FY08, which shows some in the market see further upside than UBS currently is factoring in.
Deutsche also rates the stock as Buy, pointing out management now has more time to focus on the business rather than the debt position and so performance of the group overall should benefit as a result. Citi offers the same argument, adding management will also have time to look at further acquisitions, which offers some upside potential.
The FNArena database shows most in the market covering the stock are similarly positive as the company scores six Buy ratings compared to one Hold and one Sell. The average price target is $13.60, while Thomson One has a median price target of $13.20.
Shares in Transpacific this morning are slightly weaker in line with a softer overall market and as at 12.00pm were 3c lower at $11.27.