##{"id":58426,"date":"2011-07-08T11:02:02","date_gmt":"2011-07-08T01:02:02","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2011\/07\/08\/bradken-acquisitions-spark-broker-upgrades\/"},"modified":"2011-07-08T11:02:02","modified_gmt":"2011-07-08T01:02:02","slug":"bradken-acquisitions-spark-broker-upgrades","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2011\/07\/08\/bradken-acquisitions-spark-broker-upgrades\/","title":{"rendered":"Bradken Acquisitions Spark Broker Upgrades"},"content":{"rendered":"

\n\t– Bradken<\/span> announces two acquisitions
\n\t– Deals should boost earnings and product offering
\n\t– Stock upgraded to Buy by Credit Suisse and Deutsche Bank<\/strong><\/p>\n

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\n\tBy Chris Shaw<\/p>\n

\n\tIn May Bradken<\/span> ((BKN<\/span>)) announced a capital raising, one that was seen by brokers as dilutive to earnings in the absence of any associated acquisitions. This dilutionary<\/span> impact has, in the view of Deutsche Bank, now been offset by the purchase of Norcast<\/span> Wear Solutions and Australian and Overseas Alloys for a total of $222 million.<\/p>\n

\n\tBoth the companies being acquired manufacture and sell mining wear parts, management at Bradken<\/span> expecting the combined purchases will add $28 million including synergies to EBITDA (earnings before interest, tax, depreciation and amortisation<\/span>) in FY12<\/span>.<\/p>\n

\n\tThe purchases also allow Bradken<\/span> to combine its existing Liner unit to the Norcast<\/span> operations. BA Merrill Lynch expects this will create for Bradken<\/span> a global leading offering with around 40% market share.<\/p>\n

\n\tGuidance from management is for EBITDA in FY12<\/span> of $245-$255 million, which Deutsche notes would represent growth of 25-30% from expected EBITDA of around $196 million this year. As BA-ML notes, the market had not recognised<\/span> the benefits of lower debt rates, meaning its own forecasts and market estimates for FY12<\/span> in particular had been too low.<\/p>\n

\n\tOn the back of the acquisitions brokers across the market have lifted earnings estimates for Bradken<\/span>, Deutsche lifting its earnings per share (EPS) forecasts by 18% in FY12<\/span> and by 10% in FY13<\/span>. Forecasts now stand at 60c<\/span> this year, 71c<\/span> in FY12<\/span> and 79c<\/span> in FY13<\/span>.<\/p>\n

\n\tCredit Suisse has lifted its forecasts by an average of 8% to 59.5c<\/span>, 69.6c<\/span> and 83.2c<\/span> respectively, while consensus EPS forecasts according to the FNArena<\/span> database now stand at 61.4c<\/span> for FY11<\/span> and 68.4c<\/span> for FY12<\/span>.<\/p>\n

\n\tPrice targets have similarly been increased, UBS lifting its target to $10.15 from $9.15 and BA-ML to $10.00 from $9.14. The consensus price target according to the database is $9.62, up from $9.24 previously.<\/p>\n

\n\tCredit Suisse takes the view the additional earnings being generated via Bradken's<\/span> acquisitions will alleviate market concerns with respect to earnings risk for FY12<\/span>. These risks stem from the ESCO<\/span> business and rail margins.<\/p>\n

\n\tThis, plus revised earnings expectations implying average earnings growth of 15% through FY14<\/span>, is enough for Credit Suisse to upgrade Bradken<\/span> to an Outperform rating from Neutral previously. Deutsche has made a similar upgrade in the expectation Bradken<\/span> will benefit from macro tailwinds.<\/p>\n

\n\tDeutsche estimates Bradken<\/span> is trading on an earnings multiple of 10.4 times in FY13<\/span>. Others in the market agree as post the upgrades by Deutsche Bank and Credit Suisse, Bradken<\/span> scores a perfect six-for-six Buy ratings.<\/p>\n

\n\tShares in Bradken<\/span> today are higher and as at 10.50am<\/span> the stock was up 39c<\/span> or 4.7% at $8.64. Over the past year Bradken<\/span> has traded in a range of $7.08 to $9.60, the current share price implying upside of around 16% to the consensus price target in the FNArena<\/span> database. <\/p>\n

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