Small Caps | Aug 09 2011
– Nomad struggling to rebuild order book
– Makes a return to profitability more difficult
– RBS Australia ceases coverage
By Chris Shaw
Construction, manufacturing and property development management play Nomad Building Solutions ((NOD)) has for some time received little coverage by brokers in the FNArena database. RBS Australia has been the only broker to retain coverage as Nomad's market capitalisation has fallen to around $25 million on a continuously falling share price.
Today this has changed as RBS has now decided to cease coverage on Nomad with a Sell rating. The decision, explains the stockbroker, reflects limited earnings visibility as the company continues to struggle. As an example, RBS suggests Nomad's order book has declined further over the last six months as total new orders in the period have come to just $20 million.
This suggests just 20% of the tender book has been converted. In RBS's view this puts the order book well below the run rate required to deliver a return to profitability, as this would require annual revenues of more than $200 million.
There is some scope for new contract wins as the capacity of competitors is absorbed and as major mining and LNG projects in remote areas are also progressing towards Final Investment Decision. The question for RBS is: can this deliver enough in new contracts to see Nomad generate some profits?
The other issue is financial health, as while $13.5 million was raised in 1H11 and Nomad has extended a $20 million debt facility with its bank to August of next year, RBS suggests Nomad remains in a cash lock-up position.
This means until the bank is repaid, any returns for shareholders are likely to be limited. This supports the decision to cease coverage.
Shares in Nomad today are weaker and as at 11.45am the stock was down 0.6c at $0.089. Over the past year Nomad has traded in a range of $0.085 to $0.19.
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