Australia | Feb 15 2012
– SAI Global interim a little short of expectations
– Shortfall due largely to revenue deferrals
– Expectations still for solid growth in FY13
– Brokers retain Buy recommendations
By Chris Shaw
Expectations for SAI Global ((SAI)) were high leading into the group's interim earnings result, as evidenced by a perfect eight-for-eight Buy ratings from brokers in the FNArena database prior to the result.
So the fact interim profit fell a little short of expectations was a modest disappointment, even if the earnings shortfall was due in part to some revenues being deferred. The reported result was still an increase of 11% from the previous corresponding period.
As Citi notes, a settlements contract with ANZ Banking Group ((ANZ)) has been delayed 4-6 months, while an expected ramp-up of earnings from the introduction of UK Bribery and Corruption legislation is also progressing more slowly than had been anticipated.
For Citi this suggests underlying interim earnings from SAI Global were in fact strong, as on a constant currency basis underlying revenues rose 6.9% and organic EBITDA (earnings before interest, tax, depreciation and amortisation) growth was 12%.
Given some timing issues Citi expects margins for SAI Global will fall in the second half of this year, but at the same time management is investing in future growth and this suggests solid earnings growth will be delivered in FY13.
Macquarie shares this positive view, pointing out SAI Global is currently in discussion with a number of major banks regarding further contract opportunities in property services similar to the deal in place with ANZ. The new contract pipeline for FY13 is strong according to Macquarie and supports the expectation of 20% growth in EBITDA in FY13.
UBS also remains bullishly biased on SAI Global, noting while some growth is being pushed out to next year earnings visibility remains strong. This means while earnings estimates have been adjusted across the market post the interim result, the magnitude of the changes has not been overly significant.
As an example, UBS has trimmed its full year numbers this year by 5% but lifted FY13 estimates by 1%, while Credit Suisse has lowered its earnings per share (EPS) estimates by 9% and 8% respectively. Consensus EPS forecasts for SAI Global according to the FNArena database stand at 27.4c for FY12 and 34c for FY13.
The changes to earnings estimates have meant changes to price targets, the database showing a consensus price target now of $5.47. This compares to a consensus target of $5.53 prior to the result. Targets range from BA-Merrill Lynch at $5.12 to UBS and Credit Suisse at $5.70.
Given the view FY12 will be a period of investing ahead of stronger earnings in FY13, equity brokers remain unanimously positive on SAI Global in terms of Buy ratings. Macquarie's Buy argument is earnings growth remains attractive given a continued growing of the group's global footprint, while Credit Suisse points out the defensive nature of SAI Global's earnings is attractive given the difficult economic environment.
BA-ML agrees, suggesting there is value in the stock at current levels even allowing for some execution and property transaction volume risk through coming periods. Citi also sees value, arguing at current levels a forecast earnings multiple of 13.2 times for FY13 is attractive given management's track record of above average growth.
Shares in SAI Global today are weaker and as at 11.50am the stock was down 9c at $4.72. This compares to a trading range over the past 12 months of $3.95 to $5.15, the current share price implying upside relative to the consensus price target in the FNArena database of a little more than 16%.
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