5 years of spectacular growth forecast

Australia's main testing, certification, and technical service provider to the coal mining, infrastructure and industrial processing sectors: CCI Holdings Limited (CHL) has announced some detail of it's 5 year strategic plan for the 2007-11 FY's.

The company has outlined it expects 100% growth in revenue over the next 5 years.This equates to 15% annual compound revenue growth from now until 2011. This is the sort of LT growth which makes for an excellent investment, no doubt fuelled by the growing global demand for export coal, and the need for all the major coal miners to call on CCI for additional services as they ramp up their levels of production.

The factor which makes this level of growth o attractive, is the amount of growth which is inherent. Much of the growth for CHL will come through the rise in export tonnage levels. The company gets paid per tonne for their coal testing services, so as tonnages grow so will revenue, but without costs increasing as the testing processes employed by CHL are heavily automated.

In the FY just gone CHL grew revenue by 13.5% which drove EBITDA 50% higher and EBIT 74% higher. Over the next few years growth will attract higher margin, so increases of 15% revenue annually can be expected to yield ANNUAL EARNINGS GROWTH IN THE REGION OF 50%.

CCI Just reported earnings of 2.05cps for 05/06 after abnormal provisions for one off litigation. Removing the 1.19M in abnormal charges, the figure for earnings would have been 2.75cps in 05/06, which gives a start point of earnings leading into the 5 year strategic plan.

Assuming the company can grow revenue by 15% compounding for the next 5 years, producing compounding annual earnings growth of 50%, CHL should generate the following growth in EPS: 4.1cps (07), 6.2cps (08), 9.3cps (09), 13.9cps (10), and 20.9cps (11).

These numbers are very airy fairy as there is an awful lot of water to go under the bridge before 2011. However the fundamentals point to strong growth for CCI's services and high margin growth due to CCI's costs growing at a muchslower rate than there revenue due to their processes being heavily automated.

I can't see a LT investment with better potential. Must be why CPB are begging the board of CCI for an opportunity to grow their shareholding in the stock (presumably by way of a share issue). CCI have rightly told them the compamy is now generating sufficient cashflow to service it's plant and equipment capital expenses, its funding for growth, and is still able to pay dividends.

The 'smartmoney' is already invested in CCI Holdings. But with a further 5 years of strong growth to come, the party looks to be just starting.

Regards,

Cheerful.