Australia | Sep 21 2009
By Chris Shaw
When mining services group Industrea ((IDL)) reported full year earnings last month UBS suggested the company was worthy of a Buy rating given the result had set a solid base for future earnings growth, especially given the expectation of higher margins and stronger returns from group operations in both domestic and Chinese coal markets.
Intersuisse agrees, pointing out not only was the full year profit result for FY09 a solid one but the company in recent weeks has won additional contracts worth more than $3 million with Chinese coal plays and new customers in markets as diverse as Mongolia. Over the past three months the company has won more than $33 million in new product orders from China alone, while over the course of 2009 substantial amounts of new work have also been won in the Australia market.
The company’s range of products includes longwall mining equipment, collision avoidance systems for open cut mines, underground and above ground directional drilling equiment and a range of flame-proof and explosion-proof underground diesel vehicles.
The new orders support Intersuisse’s view cash flows will remain strong, coming in at around $43 million last year with an increase to better than $60 million expected in coming years. This means the current debt level of around 70% will fall quickly if new acquisitions are not made, which would further improve what is already a comfortable level of EBITDA (earnings before interest, tax, depreciation and amortisation) cover with respect to interest costs of around six times.
Expectations of additional contract wins support the broker’s earnings growth forecasts, its estimates in earnings per share terms standing at 3.9c in FY10 and 4.9c in FY11. This compares to the 2.9c earned in FY09. By way of comparison, UBS is forecasting EPS of 5c for both FY10 and FY11.
Assuming Intersuisse’s numbers prove to be close to the mark, the stockbroker estimates a P/E (Price to Earnings) ratio for the stock of around nine times in FY11, which is well below the average market multiple at present, while it estimates the yield will increase to around 5% fully franked by that year, making the stock attractive for income seekers as well.
Intersuisse’s Buy rating is matched by that of UBS, the latter having a price target on the stock of $0.55. UBS is the only broker in te FNArena database to cover the stock. Its target compares to a share price as at 11.40am today of $0.435, which is unchanged on the day. Over the past year Industrea shares have traded between $0.089 and $0.48.
