Fleetwood Update Confirms Good News Story

This story features FLEETWOOD LIMITED. For more info SHARE ANALYSIS: FWD

– Fleetwood management presented to DJ Carmichael
– Update suggests solid growth should continue
– Further increases in dividends also expected 
– DJ Carmichael rates the stock as Accumulate

By Chris Shaw

Manufactured accommodation and recreational vehicles group Fleetwood ((FWD)) has for some time been viewed positively by the market, as evidenced by the FNArena database showing three Buy ratings compared to two Hold recommendations. DJ Carmichael is not in the database but is also positive, rating Fleetwood as Accumulate (one notch below Buy).

DJ Carmichael points out this positive view of brokers has been justified by returns to investors. Since Steve Price took over as CEO of Fleetwood in March of 2010, the stock has delivered a total return of 54% against a 6% decline in the broader All Ordinaries Accumulation index.

Earlier this week Price presented to DJ Carmichael, offering an update on market conditions for Fleetwood at present. In the manufactured accommodation sector demand from resource and oil and gas clients continues to grow steadily and some contracts are being issued, something DJ Carmichael suggests is a positive for the sector in general.

A positive for Fleetwood specifically is the recently announced contract with BHP Billiton ((BHP)), as DJ Carmichael suggests this can provide a strong base level of work over the next five years given the growth plans outlined by The Big Australian.

The BRB Modular business acquired in August of last year also continues to perform solidly. DJ Carmichael sees ongoing growth potential for this division as there is scope for the horizontal expansion of BRB products into Western Australia as well as Fleetwood products into East Coast markets.

At the Searipple accommodation village in Karratha demand for 1H12 should remain firm, though a softening is then expected as a contract with Woodside ((WPL)) winds down. Even allowing for lower demand, the good location of the asset suggests continued benefits from ongoing activity in the region, notes the stockbroker.

For the recreational vehicles side of the business the order book remains solid, though DJ Carmichael notes demand for caravans has softened slightly of late given delays to purchasing decisions. 

An ongoing attraction of Fleetwood according to DJ Carmichael is the generation of significant free cash flow, which has allowed for increases to dividends for the last 14 years. This trend is expected to continue, investors currently enjoying a fully franked yield of around 6.5%.

In summary, DJ Carmichael suggests Fleetwood should continue to expand its operations into the future, which means ongoing earnings growth and dividend increases. Short-term there are potential catalysts such as additional contract wins on projects such as Gorgon's Wheatstone development and DJ Carmichael expects these will help offset some of the impact of recent market volatility.

Shares in Fleetwood today are slightly weaker in an overall weaker share market. As at 10.40am the stock was down 12c at $11.78. This compares to a trading range over the past year of $9.53 to $14.25. The current share price implies upside of around 6% to the consensus price target in the FNArena database of $12.60.

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