Huntleys -
The board rejected a takeover offer based on price, probably from a consortium of private equity firm Carlyle Group and Kerry Stokes' equipment hire business National Hire at $6.25.
COA shares dropped as hedge funds sold down their positions. The company is moving ahead with a restructuring program to progressively reduce operating and capital costs by $30m pa.
Details are a bit light on. The focus will be on reducing costs through better input sourcing and centralised services while lifting efficiencies by improving equipment management, transport and maintenance systems.
Business Impact: A supportive backdrop is offered by solid demand growth for at least the next few years driven by ongoing resources, infrastructure investment and related maintenance activity and a renewed focus on lifting operating performance.
FY08 has started well with management reporting positive trading in the first two months and a growing order book for key customers. Guidance of 15% NPAT growth appears achievable according to our forecasts of 6% organic 6% sales growth, some margin gain and contributions from newly acquired Prime assets.
Cash generation should improve should management stick to its guidance for a 20% decline in capex to $250m through lower investment in the hire fleet. No change to our $6.50 intrinsic value estimate. FY08 NPAT declines slightly. T
he modest forward PE of 11 times understates this company's potential. The fully franked 4.5% yield is attractive.
The exit of short term traders from this stock provides a good opportunity for longer term investors to take positions.
Buy.
COA
coates hire limited
