Fat Prophets 28/1/2014:Fundamentally, however, nothing has...

Fat Prophets 28/1/2014:

Fundamentally, however, nothing has changed in terms of our view on Programmed Maintenance. It continues to offer an attractive ‘Yield + Cyclical Upside’ investment proposition. Indeed, notwithstanding the share price appreciation, the stock still offers a prospective yield of around 5 percent (or much greater for those Members who purchased the stock last year)— one that we believe is sustainable given the company’s strong free cash generation and robust financial position.

As a matter of fact, the balance sheet strength is such that management recently refinanced the company’s debt facilities on improved terms while extending the expiry to December 2017 (from October 2014).

On the ‘Cyclical Upside’ front, current general trading conditions remain subdued, particularly for the Property & Infrastructure and the Workforce divisions. While management has provided a relatively solid guidance of a 9 percent growth in full year underlying net profit (ending March 2014), there is very little revenue improvement factored into this projection.

However, when the current cyclical headwinds ease and eventually turn into tailwinds, Programmed Maintenance is likely to enjoy material earnings leverage, especially in the Workforce and maintenance businesses. Longer term, there is also the strong pipeline of projects in the buoyant oil and gas sector, driving the Resources division’s growth for the next 3-4 years.