Positive Guidance
ZGL; Buy up to 16 cents
Negative sentiment has pervaded global stock markets during 2010, resulting in equity pricing that sees risk everywhere and places minimal value on certainty and opportunity.
At the small-cap end of the spectrum Zicom is a prime example with a subdued share price performance despite positive earnings guidance and the announcement of a share buy-back scheme.
Zicom has provided guidance for an improving earnings performance and has also announced a share buy-back as it seeks better value recognition for its shares.
Last week the company provided updated unaudited earnings guidance for the full year result, stating simply that It expects the second half of the financial year ended 30 June 2010, to show an improvement over the first half year. It also noted that its business prospects remain strong. Recapping, the first half of FY10 had resulted in reported net earnings of S$3.6m, or S$3.1m after one-off factors were excluded. (Note: the exchange rate is currently around A$1.00 = S$1.20).
Overall, it now appears that CY 2009 represented the low point in the current earnings cycle.
Equally importantly, the release stated that all of its subsidiaries have been profitable during the second half of FY10 reversing the trend for its Australian subsidiary and its automation engineering business in Singapore, which had been loss making in FY09. In part, this can be attributed to a lowering of the production cost base of the company following the completion of its Thailand factory as well as a recovery in sales.
Unfortunately, no specific guidance was provided on the current state of the forward order book which is a key indicator for the company.
Our current estimate of the earnings of the company is as follows:
Year Ending 30 June 2007 2008 2009 2010F
Revenue (A$m) 78.0 98.8 123.6 83.1
NPAT (A$m) 6.3 6.8 9.3 6.3
EPS (cents) 3.5 3.5 4.4 3.0
P/E 4.6 4.5 3.6 5.4
Dividend (cps) 0.35 0.80 0.60 0.70
Dividend Yield 2.2% 5.0% 3.8% 4.4%
SR estimates
Clearly the company is simply cheap based on current earnings levels. Similarly, its balance sheet is in good shape (low gearing, with a net cash position of $8m as at 31 December 2009) leaving it well placed to consider investment opportunities or capital management initiatives.
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