Australia | Feb 24 2011
– Global Construction posts strong interim result
– DJ Carmichael lifts earnings forecasts and price target
– Maintains Buy rating
By Chris Shaw
Commercial and residential construction group Global Construction Services ((GCS)) delivered an 86% increase in net profit compared to the previous corresponding period, DJ Carmichael viewing the profit of $9.1 million as a high quality result.
Earnings were driven by an 82% increase in revenues relative to the previous half year, while operating cash flows rose 120% to $18.6 million. DJ Carmichael estimates Global Construction was able to achieve an EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) margin of 26%.
All divisions contributed to the result, DJ Carmichael noting residential operations were boosted by a recovery in activity in the Western Australian housing market, while Commercial division earnings were boosted by some major project work.
A positive in the period and for future periods according to DJ Carmichael is the Resources and Industrials division now starting to ramp up operations, as Global Construction continues to roll out Plant Hire branches in Western Australia's north-west.
At present Global Construction has indicated full year earnings of $17.1 million are likely, but on the back of the interim result DJ Carmichael expects this guidance will be exceeded. To reflect this the broker's forecast for full year net profit has been lifted to $17.4 million, while estimates have also been increased in later years.
The changes to numbers support DJ Carmichael's view Global Construction should be able to win new contracts and so grow the order book, especially on the commercial side. Most likely is additional work on hospital, water and rail contracts.
A strong balance sheet also offers Global Construction further growth options in the view of DJ Carmichael, as the broker notes post the interim result net debt to equity has now fallen to 35.3%.
In earnings per share (EPS) terms DJ Carmichael is now forecasting 19.1c in FY11 and 21c in FY12, which compares with the 12.9c Global Construction recorded in FY10. There is little basis for comparison as given a market capitalisation of around $150 million Global Construction receives no coverage from brokers in the FNArena database.
On the back of the increases to earnings forecasts DJ Carmichael has lifted its price target for Global Construction to $2.05 from $2.01 while maintaining a Buy rating. With the stock trading on a forecast earnings multiple of 7.7 times in FY12 and offering a fully franked dividend yield of 5.3%, DJ Carmichael suggests there is solid value at current levels.
Shares in Global Construction today are stronger and as at 1.30pm the stock was up 7.5c or 4.6% at $1.70. Over the past year the shares have traded in a range of $0.80 to $1.70.
