Wridgways Australia 29 Aug, 2007 Servicing the Resources Boom WWA; Buy up to $2.88 Wridgways is a household name in removals with a long history having been founded in 1892 by Ernest Wridgway. It was purchased in 1970s by Ansett Transport Industries which later sold it to TNT Australia in 1994. In 1997 key management and a venture capital partner (Catalyst) conducted a successful management buy-out resulting in a 40% management ownership.
“Wridgways provides defensive exposure to the resources boom with an attractive dividend yield and earnings growth largely dependent on already sanctioned projects. Even in a softening resources market, there will be personnel movement from smaller companies to the larger more stable miners which are likely to use the services of Wridgways.”
Catalyst commenced an exit strategy in 1999 via an IPO and the company was successfully listed on ASX in May 1999 with 32 million ordinary shares issued @ 50 cents per share – the same number still on issue today.
Wridgeways is a focused removalist company although the business has a number of segments which cater for different aspects and clients in moving. These are:
Wridgways The Removalists The company has a comprehensive range of relocation products which cover local, regional and interstate movements. It includes:
30 offices and storage facilities around Australia Customers include major corporate and government departments It has ISO 9002 quality accreditation It the only Australian removal company nationally accredited to Australian and NZ Standard 4801 Occupational Health and Safety Management Systems This division generates 60% of total revenue and experienced 10% growth over the last financial year. This was driven by strong growth out of Western Australia and Queensland, directly correlating with the resources boom, although all states experienced growth.
Wridgways The Worldwide Movers The company has a network of over 600 agents in 90 countries for worldwide moves.
>12 million kilograms pa of air and sea consignments around the world for corporations, governments and individuals It is recorded as a among the lowest loss and damage ratios to customer goods of all worldwide removalist companies This division experienced 17% growth in revenue over the last year.
Move Dynamics This business is a specialist removals and storage broker, servicing the needs of state and federal government departments through sophisticated internet technology and a network of 100 service providers around Australia. There is potential to licence its brokerage system in overseas markets.
Move Dynamics’ revenue fell 18% in FY07 following a strong performance in FY06 when revenue increased by 43%.
Wridgways Move Solutions The company provides specialist relocation services for corporate and government employees on transfer within Australia or overseas and been established for three years. Services include:
Visa and immigration services Home and school search Family settlement programs This business continued to grow strongly, with revenue increasing by 50% in FY07. New branches were opened in Sydney and Perth, and the company believes that there are opportunities to significantly expand this business.
Wridgways Project Management This business provides transport, storage and logistics services for the hotel and resort industry, and revenue tends to move in line with hotel/resort building and refurbishment timelines (therefore greater revenue fluctuations).
This business experience an 83% increase in revenue over the year due to higher hotel building and refurbishment activity.
Industry Structure Overall, the company notes that the removalist industry structure has no barriers to entry and is comprised of many companies of all sizes. Total industry revenue difficult to estimate, but is believed to be in the order of ~$750m pa. Fortunately, Wridgways competes at top end of the market, dealing with major corporate clients and government departments which comprise a large part of the revenue.
Major competitors are:
Allied Pickford (Sirva) which is American owned and is estimated to have similar revenue levels to Wridgways Grace Removals which is Hong Kong owned, has a strong brand name and with revenue estimated around 65% of Wridgways levels Kent Removals which is a family-owned Australian company and similar in size to Grace Despite low barriers to entry, attributes of a successful business like Wridgways are strong branding and quality recognition.
Financial Outlook The company has recently released an upbeat FY07 NPAT of $5.9m, which represents a 35% increase on FY06 earnings.
Source: Company
The directors have declared a final dividend of 10.0 cents per share fully franked (FY2006: 5.0 cents), payable on 28 September 2007 to shareholders on the register at 21 September 2007. This will bring total dividends for the year to 15.0 cents per share fully franked, double ordinary dividends in FY2006.
The company is also debt free and has a net cash position of $8.4m as at 30 June 2007.
Reviewing the performance of the company over the last few years highlights the impact of the resources boom. The relocation of key personnel around mining towns is likely to continue over the longer term as many companies have embarked on expansion projects which will take some years to develop and implement. In particular, a weakening junior market for resources is likely to encourage mining professionals to seek employment with the more stable mining houses, themselves potentially more likely to use companies like Wridgways for relocations.
We are forecasting increasing earnings in FY08 which are in line with the company’s statements that it expects further revenue and earnings growth, subject to a stable international economic and geopolitical environment.
Despite the recent share price rise, the FY08 P/E is acceptable for a growth business and the dividend yield of 6.3% (fully franked) is supportive. Furthermore, the stock is still cum the FY07 final dividend, providing the opportunity to capture three dividends in thirteen months totalling 28 cents (fully franked) based on our forecasts.
Board and Capital Structure The Board comprises:
Anthony Watmore (Chairman) J A Brown (Non-executive Director) Brian Weir (Non-executive Director) Desmond Stickland (Managing Director) Brian Clarke (Finance Director) Mr Stickland was appointed Chief Executive in 1991 and assumed the role of Managing Director in 1997.
With a straightforward capital structure and no debt, the enterprise value is $83m.
Market Valuation Issued Shares (m) Share Price (cents) Market Cap (A$m) Fully paid shares 32.0 $2.85 $91.2 Diluted Market Cap $91.2 Cash $8.4 Debt $0.0 Enterprise value $82.8
Stock Resource Recommendation Wridgways has been a major beneficiary of the resources boom providing relocation services to personnel in the mining industry and elsewhere. We expect this service industry to continue to prosper and Wridgways has a number of contracts which should result in a strong FY08. With an attractive fully franked dividend yield, it also provides defensive exposure to the current market volatility.
Hence, Stock Resource recommends Wridgways as a Buy up to $2.88 for all Members. Members should also note that the stock can be thinly traded and patience may be required in getting set at the recommended price
WWA Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
