Australia | Nov 03 2010
By Rudi Filapek-Vandyck
Stockbroker Moelis has updated its thoughts and views on Campbell Bros ((CPB)) this morning after a meeting with company management. The end result makes for more positive news, more anticipation of positive news and with the stockbroker suggesting there's plenty of fuel left in the tank, even after a strong share price performance over the past six months.
Reports Moelis: management did its best to emphasise the current strong industry recovery for ALS division services. Sample flows into ALS’ Minerals segment have increased by at least 50% to date in FY11, reports Moelis, and management expects a maintenance in current robust activity levels through until at least the end of calendar 2010.
The stockbroker points out the Minerals segment is traditionally good for about 50% of the divisions revenues and the ALS division traditionally makes up in excess of 90% of total group earnings.
Campbell Bros is scheduled to release its interim results on November 25 (three weeks away) and company management has guided (and reiterated its guidance at the meeting) that net profits would be inside the range of $63m-$68m. This represents an increase on last year's comparable period of between 65-80%. Moeilis does point out that last year's result represents a low base.
To add more confidence to these numbers, management stated during the meeting it was “very comfortable” with these numbers, even with AUD/USD near parity.
Moeilis notes every 1 cent rise in AUD reduces group profits by around $0.9m so management's confidence could easily be interpreted as “indicative of the significant strength of the underlying business”.
Equally important is that management at Campbell does not anticipate the second half will replicate the performance in the first six months of the current financial year. The company will have to ramp up its spending to be able to fully maximise opportunities available, notes Moelis.
As such, the stockbroker only sees “moderate” upside to current market forecasts for the company in FY11. But, and there is a BIG but: Moeilis thinks FY12 might turn out a lot better than what is suggested in current market forecasts (including its own). For what it's worth, management has apparently indicated FY12 will “be a very good year”, with “all the ducks lined up”, reports the stockbroker.
Campbell Bros shares have outperformed the broader market, rising some 25% over the past year or so but Moelis believes that as the good news keeps on rolling, so too will it continue carrying the share price further upwards.
No wonder thus, the stock is rated Buy. FNArena's Stock Analysis service shows all six major stockbrokers in Australia covering the stock equally have a positive rating on the stock. Consensus price target of $35.92 implies there's not much upside left after recent stellar performance, but maybe the low markers at $32 and $34 will lift the gap with the others at $38-$39 after the upcoming interim report?
Current consensus forecasts anticipate that, after that horrible decline in FY10, earnings per share should bounce back to FY09 levels (up some 51%) with FY12 expected to add 20% growth on top.
Moeilis' forecasts are lower for FY11 (+47%) but a little bit higher (+22%) for FY12.
On consensus estimates, the shares are presently trading on dividend yields of 3.4% (FY11) and 3.9% (FY12) respectively. The PE ratio (on consensus estimates) does not look cheap, at 18x for FY11, but this drops to 14.9 for FY12, with, apparently, ongoing upside bias.
Campbell shares have appreciated strongly since May this year when they sank below $27. They closed at $35 yesterday.
