balnave capital sdm trade report

Sedgman Ltd (SDM)
Current Price: $1.66
Price Target: $2.00 Target 1. $2.25 Target 2.
Market Cap $341m
Shares on Issue 206 million

Sedgman Ltd is a leading provider of multi-disciplinary engineering, project deliver and operations services to the global Coal Industry. It is a market leader in design , construction and operation of coal handling and preparation plants and has gained international recognition for its coal processing and materials handling technologies.
KEY POINTS
? Quality global coal players of size include : Anglo, BHP Billiton, MacArthur Coal, New Hope Coal, Peabody, Vale, Xstrata, RIO, Riversdale, Sonoma.
? Dominant market position with over 50% of all Coal Handling and Processing activity in Australia.
? Global investment into new and expanding coal projects is at all time high levels.
? Recognised increased demand from India and China for quality coking coal to fuel steel furnaces as record steel production is forecast for 2010 through 2012
? $5.50 bn in forward orders/projects over next 3 years.
? 2010 EPS forecast conservatively +28%, EBITDA forecast +27%, NPAT forecast +28% - room for improvement in figures due to stronger market demand
? BREAKOUT from extended price consolidation is imminent at $1.70
? Consensus Broker valuation is $2.00 , 2010 PE 11 but with large and increasing order book, this is likely to be conservative.
NEAR TERM SHARE PRICE CATALYST
? Potential for earnings upgrade ? we believe that the forward order book of $5.50bn over 3 years is increasing and near term work could be higher given the number of new coal projects and demand for current services.
? Announcement of Clive Palmers $60bn coal deal with Chinese parties on Qld project will further increase the demand for coal handling and project management as well as lead to higher margins on services in the industry. Sedgman will be likely to pick up a good portion of this new business in Qld due to long standing relationships in that state.

Technically
There has been good consolidation over recent months from run up from $1.00 late in 2009. We will look for a move through $1.70 to confirm technically that the next leg is evolving but with supporting positive fundamentals it is worth taking a first part of a larger position at current prices ($1.66)
BUY 50% Position here at $1.66 and ADD second 50% on trade of $1.70 which would confirm breakout move is occurring
Exit Target 1 for first position at $2.00 for profit expectation of 20%. Exit second position at Target $2.25 for 32% profit.

Source : Paritech Pulse, Sedgman Ltd, Balnave Capital