from ubs
1H07 result review
�� 1H07 NPAT weaker than expected
COA reported NPAT of $46.5m vs. UBSe of $51.8m. While operating revenue
growth of 10.1% to $379.1m beat our estimate of $365.0m, direct cost pressure
resulted in gross margins declining to 45.3% from 47.6% pcp. A fully franked
interim dividend of 10cps was declared.
�� Outlook remains positive
Despite management providing guidance for FY07 NPAT of between $106-110m,
below our previous estimate of $112m, we believe the outlook for COA remains
positive. With fleet re-locations completed, continued strength in Qld and WA,
project extensions and improved utilisation rates in the Allied division, should
result in a stronger 2H07 relative to 1H07.
�� FY07-08 NPAT estimate lowered 2.9% & 3.4%
For FY07 we have raised our revenue estimate 3.7% to reflect the full year
benefits of the Allplant and Bennett acquisitions, however direct cost pressure is
expected to continue short term resulting in EBITDA increasing only 3.0%. Higher
depreciation and interest costs, slightly offset by a lower effective tax rate result in
a 2.9% decline in our NPAT estimate to $109.2m.
�� Valuation: $7.50 target price; Buy 2 rating
We value Coates on a DCF basis at $7.00-8.00 per share, depending on the rate of
return generated by surplus capital over the next few years. Our target price of
$7.50 is in the middle of this range.
COA
coates hire limited
