First Recommendation 23/04/2006 Share Price $0.16 12 mth Price Target $0.40 Suggested Stop Loss $0.09 Recommendation Spec Buy Risk Rating High
Company Background Brandrill Limited is Australia’s largest drill and blast provider with about 7% of the domestic market. The company’s clients include a number of large reputable Australian miners with open-cut mines, underground mines, and civil construction projects. Brandrill is also trying to commercialise its PCF rock breaking technology.
Investment Summary While the future of commodity prices is uncertain as new mines start production, it is clear that the volume of commodity production is set to rise. The rapid emergence of a middle classes in China and India is likely to continue and will require substantial amounts of raw commodities in the process. This is where Brandrill is set to benefit, as its business relies on the volume of production, not commodity prices. This makes it a less risky proposition than a resources company that can only survive in times of record high prices. As Brandrill looks to further grow its operations through the acquisition of new drilling rigs, and expand its profitability through improved supply chain management we see the potential for a further market re-rating in the stock. The company's underperforming explosives division RockTek may also bring unexpected upside to the business as it introduces a new sales model. Brandrill is a ‘Spec Buy’ at current levels.
wise-owl Checklist Experienced and dedicated management team. The high commodity volumes that form the lifeblood of Bran drill’s business are expected to continue. Margins expected to grow as supply chain management is improved. Opportunity to grow via acquisitions that expand the drilling fleet. Previous high has been broken with strong momentum. Fundamental & Quantitative Analysis Management Kenneth R Perry - Managing Director Mr Perry has over 15 years experience in senior management roles with Rio Tinto before serving as Director General of the Department of Minerals & Energy (WA) between 1994 and 1997. Subsequently he worked with Resource Finance Corporation.
Jeffrey W Branson - General Manager, Business Development Jeffrey has been involved with Brandrill Ltd since its inception in 1980. In the 25 years since he has played a pivotal role in the growth and expansion of the business. He has an extensive knowledge of the surface mining, underground mining and specialist rock-breaking industries and has considerable experience negotiating contracts for Brandrill.
Financial Performance In the 12 months to December 2005 sales grew 57% from $28.8m to $45.1m. EBIT grew 118% from $1.1m in calendar year 2004 to $2.4m in calendar year 2005 and recurring NPAT rose from $0.4m in calendar year 2004 to $1.6m in calendar year 2005, up 400%. The struggling RockTek explosives division made a loss of $323k for the period. Earnings growth is expected to continue as Brandrill remains on target to expand revenues to $100m this financial year.
Growth / Value Story Much debate is circulating in the investment community as to whether or not commodity prices will rise further, stabilise, or even fall. It can be argued that a supply response (production from new mines) will bring commodity prices back to earth. What remains more certain is that demand for commodities in high volumes will be strong for the foreseeable future. The emergence of large middle classes around the world, most notably in China and India will require substantial amounts of raw materials. What places Brandrill in a strong position is that while the future of commodity prices is uncertain, the need for production volumes to continue expanding is set to continue and keep Brandrills services in strong demand.
Brandrill is supplying only 5-7% of the Australian drill and blast market. It is focussed on expanding this market share through the acquisition of more drill rigs beyond its current fleet of 60. Further opportunity for earnings growth may be sourced through improved supply chain management and a new sales model for its explosives business RockTek.
Technical Overview
With the break of the 10c resistance level in November 2005, stock has begun trading in a strong bullish channel. The break of a wedge pattern in January 2006 saw prices peak at 14.5c and a deep consolidation back to the 10c followed. With prices breaking the 14.5c level this week, bullish potential has been confirmed. The main risk remains the volatility in share price with a strong chance of consolidation after every major move to the upside. Major support lies at the 10c level which should not be breached for the bullish channel to remain in tact.
BDL Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
