Ann: 2014 Half Year Results and Appendix 4D , page-11

No friends for LogiCamms

Brendon Lau28 February 2014


Its poor result might have been flagged but that has not saved LogiCamms (LCM) from tumbling to a near two-year low this afternoon.

Shares in the engineering contractor fell 8% to 92 cents ahead of the close after management reported a 60% plunge in earnings before interest, tax, depreciation and amortisation (EBITDA) to $3 million for the six months to end December.

The profit tumble may have been disclosed by the company at the start of this month (which triggered a 20% plus fall on that day), but the cut in its interim dividend to 2 cents a share from 4.5 cents sucked what little support the stock had left.

The fact is consensus expectations are still running a little too high and more analysts’ earnings downgrades are probably in pipe as brokers polled on Bloomberg are forecasting a slight increase in 2013-14 EBITDA to $13.7 million and a full year dividend of 8.3 cents a share compared with last year’s 9 cents a share payout.

This is despite the fact that management is tipping EBITDA to range between $11 million to $13 million.

On the current optimistic consensus, the stock appears cheap as it is on a 2013-14 price-earnings multiple of 6.8 times and yield of 8.9%.

But if LogiCamms delivers a full year result at the bottom end of management’s guidance, the P/E will go over eight times and I suspect the yield will fall to 7%.

This still doesn’t appear too bad, but given that LogiCamms is banking on a very big uplift in the second half at a time when Australian capital expenditure has fallen more than expected in December, some investors might feel that the stock isn’t cheap enough given the level of uncertainty.

On the upside, the company does have a strong balance sheet with over $9 million in cash and a pretty promising pipeline of work. Its growing exposure to the oil & gas sector is also another plus given the level of activity in that space.

I first highlighted LogiCamms’ favourable attributes, including its dividend, in August last year when the stock has trading at $1.47.

However, the latest result, growing pressure on margins and the shaper than expected contraction in capital spending in the resources sector has forced me to adjust my view. My recommendation on the stock is under review.

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