Ferrets Stock to Watch: MONADELPHOUS GROUP LTD 08:26, Wednesday, February 21, 2007
AN ENGINEERING GROUP IN THE THICK OF THE RESOURCES BOOM
Sydney - Wednesday - February 21: (RWE Aust Business News) **********************************************************
OVERVIEW ********
Absorbing the half-year results of the Monadelphous Group (ASX:MND) makes you think it couldn't be much better than that.
It also epitomises what has been happening in the booming resources sector fired up by the insatiable demand by the Chinese.
Just look at this: The surge in resources projects has driven the Monadelphous Group to a record after-tax profit of $31.4 million for the December half year, up 152 per cent on the same period a year earlier.
Sales revenue climbed 105 per cent to $499.4 million while earnings per share was 38.5c, up 152 per cent.
The national engineering firm generated sharply increased workload levels for the half.
Managing director Rob Velletri said the surge in construction activity related to the resources industry saw a large number of projects come on-stream together, generating accelerated work rates.
This resulted in a revenue peak for the first half and increased fixed economies of scale which delivered substantial improvements in profit margins.
The company also successfully managed a significant increase in capacity, with workforce numbers reaching around 3,500 - up from about 3,000 at the end of 2005/06.
However, Mr Velletri, has warned about a number of projects ramping down in the second half, which is expected to see a return to a more normalised level of activity.
Full year revenues for 2006/07 are expected to exceed $800 million - over 50 per cent up on the 2005/06 trading result of $532 million.
The managing director pointed out that the extraordinary levels of engineering construction activity in the first half, in particular, flowed from iron ore industry expansions in Western Australia.
But the company's long-term sustainable growth continues to focus on growing its recurring revenue base, geographical expansion of its electrical services business and further development of new work in the oil and gas, power and water markets.
"The half year has seen considerable progress on these fronts and we remain confident of further growth in these sectors," he said.
In addition to the growth in revenues from the engineering and construction division, the electrical and instrumentation division also provided a significant contribution during the period.
The division achieved sales revenues for the period totalling $40.4 million, a 274 per cent increase on the previous corresponding period.
Monadelphous's directors declared an interim dividend of 22c per share fully franked, an increase of 144 per cent over the previous corresponding period.
For the third consecutive year, the company intends to pay a special dividend together with the September final dividend for the 2006/07 financial year.
The special dividend payments, in addition to interim and final dividends, have to date resulted in a total annual payout ratio of around 90 per cent of net profit.
SHARE MARKET MOVEMENTS **********************
Shares of Monadelphous Group yesterday jumped 87c to $11.44. Rolling high for the year is $11.50 and low $5.32. Dividend is 24c to yield 2.12pc. Earnings per share 36.48c and p/e ratio 31.36. The company has 82.7 million shares on issue with a market cap of $935.4 million.
Looking forward to the 2007/08 financial year and beyond, the board has resolved to simplify the dividend payment policy by increasing the interim and final dividend payout ratio from a range of 60 to 70 per cent to a range of 80 to 100 per cent and ceasing payment of special dividends.
The company will now pay an interim dividend of 22c per share fully franked to shareholders on March 16.
This policy will continue to be subject to ongoing strong trading conditions and the need for any significant cash requirement for investment opportunities.
Monadelphous's core business remains robust and healthy and the pipeline of projects continues to be strong.
In particular, iron ore expansions in Western Australia are providing major opportunities for the company and are projected to continue for the next few years.
However, "we have to continue to be competitive and win the new work," Mr Velletri said.
"The massive increase in engineering construction revenue in the first half should be viewed as an extraordinary spike in workload brought about by concurrent and accelerated project timing, together with the successful achievement of the company's expanded workforce capacity.
"The flow of revenues from engineering construction projects will, however, continue to be heavily impacted by project timing and capacity utilisation.
"Any expectations of continuous year-on-year growth for this part of the business should be treated with caution," Mr Velletri declared.
BACKGROUND **********
The Monadelphous Group joined the Australian Stock Exchange list on March 28, 1991.
The company is a leading national engineering group providing extensive engineering construction, maintenance and industrial services to the resources, energy and infrastructure sectors.
The company has operated for over 30 years and has a solid track record in the safe and reliable delivery of major multi-disciplinary construction projects and maintenance and industrial services for customers throughout Australia.
Recognised as a highly customer-focused organisation, Monadelphous is uniquely capable of providing value solutions for a diversity of customer requirements.
Since the company's public listing in 1987, Monadelphous has demonstrated a steady growth in revenue, profit and earnings. In 2005 sales revenue reached a record $390 million.
The company operates from major offices located in Perth and Brisbane with local engineering support services provided through fully equipped regional operations located in key resource industry centres around Australia.
The company's success has been built on a reputation of producing solid, quality work and maintaining a clear customer focus.
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