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UXC

IN THESE difficult market conditions, one course of action is to find companies that have positive operational momentum after a number of lean years.

One candidate for this category is technology services group UXC. The company was smashed in the sharemarket rout of 2008, falling from a high of $2.46 in mid-2007 to a low of 23¢ in March 2009. More recently the share price has jumped 43 per cent, from 39¢ in December 2011 to be trading at 56.5¢ a share.

This rerating stems from an overhaul of the business, in which some assets have been sold, a gradual increase in profit margins, and the balance sheet moving to a net cash position.

In a sign of confidence, the company had, until the beginning of this month, been buying back its own stock. UXC is expected to meet profit forecasts when it reports its earnings in August. More impressive, though, should be the group's balance sheet and cash flows.

Despite its rally, UXC still trades at a 20 per cent price-to-earnings discount to its peers. Earnings momentum into 2013 should be healthy with contract wins and the full benefit of a $10 million cost-out program being felt. All this should result in the price discount narrowing, providing upside to the share price.

Interestingly, with revenue just north of $500 million a year, UXC offers a suitor a nice bite-sized acquisition. Local players believe that to compete against the larger global players, they need revenue of close to $1 billion. If corporate activity was to take place, there would be great synergies and it could move UXC's price towards $1 a share.


Read more: http://www.smh.com.au/business/wrt-a-fine-performer-but-watch-for-falling-yield-20120725-22qp4.html#ixzz21iVo9IGk