Morning money mthly recommendation. Potential rewards. Lindsay...

Morning money mthly recommendation.
Potential rewards.
Lindsay foresees that total revenue in the year ending 30 June 2015 will be approximately $340 million. That represents revenue growth of 9.3%. My research and analysis suggest that forecast is too conservative. The northern Queensland food bowl will continue to emerge as consumers in Australia and abroad demand more quality fresh fruit and vegetables. Last year, Lindsay’s business in the region grew by a massive 25%. Lindsay has invested wisely in higher-yielding trucks and trailers. Its ability to boost capacity utilisation is constantly improving. And just as importantly, it should get better at keeping costs under control. These factors should come together over the next few years to lift profit margins, just as the structural tailwind of Asian consumption growth takes hold. All of that should sustain and boost Lindsay’s return on equity — which is already high for the sector at more than 10%. That solid return on equity reflects Lindsay’s ability to generate strong cash flows. That, in turn, enables generous dividend payments — two cents per share in FY14. Lindsay’s ability to boost dividend payments should continue to increase — which puts the stock on a prospective fully-franked dividend yield of more than 5.5%. These factors alone should enhance Lindsay’s appeal to a broad range of investors. But this stock’s scope for capital growth is truly exciting. As the fast-growing northern Queensland region becomes a more important contributor to the business, I can conservatively see Lindsay’s revenue growing by 14% each year for the next three years. That represents an acceleration from the last few years’ revenue growth — but the way I see things, this company is at an inflection point. That would see the company making more than $461 million in sales in the year ending 30 June 2017. So how much of that revenue could Lindsay keep as profit? As always, I like to keep my forecasts conservative. The transport game is one of razor-thin margins. Fleet depreciation and finance costs can hammer margins flat as a tack — but if management can optimise all the variables I’ve showed you in this report, the upside can be explosive. Lindsay’s net profit margin has tracked an upward trajectory over the past few years, pushing well past 2%. World-class trucking companies like J.B. Hunt Transport Services, Inc [NASDAQ:JBHT] run on a net profit margin greater than 6%.
That leaves plenty of room for improvement at Lindsay. Imagine if this business can achieve net profit margins of just 3.5% by 2017. That’s a conservative forecast in light of the positive trends Lindsay is exhibiting. If that happens, and my revenue forecasts prove accurate, Lindsay will earn $16.2 million in net profit in 2017. So what might the market pay for this stock once investors cotton onto its growth potential?