sp down, thematics up

One of the comments from the recent AGM on "outlook" is something I've been watching carefully (from Phil Jobe):

"trading conditions remained particularly challenging in the first quarter of 2013, with volumes down on the same quarter last year. The improvements in lead indicators for the housing market, such as building approvals, lower interest rates, increasing home prices, and improving sentiment as evidenced by the “time to buy a dwelling index” have not as yet translated into increasing volumes in the order book, and are now not expected to do so in the June 2013 quarter.

Volumes are forecast to lift in the second half of the 2013 calendar year as the housing cycle turns leading to improved second half financial results".

As building approvals are lead indicators its going to take time for these thematics to trickle down to business impacts. There is a risk that the business cannot capitalise on the upturn, but I see this as limited because it implies that CAA cannot execute on its sales strategy. They have the right people to drive revenue growth. Nonetheless, I am awaiting until we see hard evidence of improvement before buying more.

Having said this I did buy on the recent dip at $0.19 purely on the back of weakening AUD rates. The impact of a low FX rate is accurately summarised by the following report:

Since that report was produced (March) the FX rate has weakened by around 3c which translates to ~2.25M in recoverable cost inputs (taking a $750K mid point). Due to this point alone, it looks like CAA can achieve break-even at June and around a ~$4M EBITDA profit for the full year. However, I wouldnt be surprised to see a small loss of around ~2M at the half year (per guidance) which is why I havent jumped in head first. The leverage to improving conditions is huge and I am waiting in aniticpation.

Cash balance is also strong at $16M, so the business can sustain small losses.