##{"id":58882,"date":"2011-09-22T11:27:48","date_gmt":"2011-09-22T01:27:48","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2011\/09\/22\/fleetwood-floors-bhp\/"},"modified":"2011-09-22T11:27:48","modified_gmt":"2011-09-22T01:27:48","slug":"fleetwood-floors-bhp","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2011\/09\/22\/fleetwood-floors-bhp\/","title":{"rendered":"Fleetwood Floors BHP"},"content":{"rendered":"

\n\t– Fleetwood wins new contract with BHP<\/span> Billiton<\/span>
\n\t– Deal should deliver solid boost to revenues
\n\t– Additional contract wins offer upside earnings risk
\n\t– Yield also attractive, supports value in the stock<\/strong><\/p>\n

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

\n\tFleetwood ((FWD)) this week announced the signing of a five-year contract with BHP<\/span> Billiton<\/span> ((BHP<\/span>)) for the manufacture of up to 240 ancillary building floors per year. The floors will include ablutions facilities, security offices, crib rooms and administration units. <\/p>\n

\n\tThe deal is a clear positive for Fleetwood, as while Credit Suisse suggests there is broad variability in the potential value of the contract it is likely to be more than the $25 million value of a similar contract with Rio Tinto ((RIO)) in FY09<\/span>.<\/p>\n

\n\tRBS<\/span> Australia agrees, estimating the contract could add between $30-$60 million to annual revenues for Fleetwood. This has seen RBS<\/span> push up its earnings per share (EPS) estimates, numbers for FY12<\/span> being increased by 8% and for FY13<\/span> by 10%. <\/p>\n

\n\tCredit Suisse has similarly lifted forecasts but by a lesser amount, increasing its estimates by 1-2% through FY13<\/span>. DJ Carmichael has split the difference and increased EPS forecasts by 3.2% and 4.2% respectively for FY12<\/span> and FY13<\/span>.<\/p>\n

\n\tThis leaves DJ Carmichael forecasting EPS for Fleetwood of 90.2c<\/span> this year and 103.9c<\/span> in FY13<\/span>. This compares to consensus EPS forecasts according to the FNArena<\/span> database of 93.2c<\/span> for FY12<\/span> and 98.9c<\/span> for FY13<\/span> (note not all brokers have updated their model post the announcement).<\/p>\n

\n\tGiven EPS for FY11<\/span> was about 89c<\/span>, earnings growth for Fleetwood for FY12<\/span> appears relatively modest. But in Credit Suisse's view risk to forecasts are to the upside at present, this thanks to a strong pipeline of contract opportunities. <\/p>\n

\n\tAs management indicated when releasing FY11<\/span> results last month, the contract tender environment for portable accommodation remains robust. As well, DJ Carmichael suggests any increase in utilisation<\/span> at the Searipple<\/span> accommodation village would also offer some upside risk for earnings.<\/p>\n

\n\tManagement has guided to a solid 1H12<\/span> result from Searipple<\/span> and RBS<\/span> notes occupancy levels are at present tracking in line with this guidance. While a softening is expected in the second half of FY12<\/span>, there should be a pick up in FY13<\/span> as a number of major projects start to come on-line.<\/p>\n

\n\tOn the recreational vehicle side of the business, RBS<\/span> has been in touch with management and the indication is so far in FY12<\/span> production volumes have not increased at the rate expected by the market. RBS<\/span> had modeled conservative numbers in expectation of such an outcome and so remains comfortable with its forecasts, which stand at the upper end of market estimates.<\/p>\n

\n\tChanges to earnings estimates have seen some increases in price targets, RBS<\/span> lifting its target to $13.56 from $13.16 and Credit Suisse by 14c<\/span> to $11.54. The consensus price target in the database now stands at $12.60, up from $12.52. DJ Carmichael is not in the database but has lifted its target by 20c<\/span> to $11.70.<\/p>\n

\n\tRatings are unchanged, with the database showing Fleetwood is rated as Buy three times and Hold twice. DJ Carmichael rates Fleetwood as Accumulate (one notch below Buy).<\/p>\n

\n\tWhat makes Fleetwood more attractive in the face of somewhat subdued earnings growth expectations in FY12<\/span> is an attractive dividend yield. DJ Carmichael's forecasts imply a fully franked yield of 7.1% for FY12<\/span> and better than 8% for FY13<\/span>, while RBS's<\/span> estimates suggest respective yields of 7.85% and 8.49%. <\/p>\n

\n\tThe yield looks supportable in the view of Credit Suisse given Fleetwood has no debt and enjoys solid cash conversion from its operations. As well as the attractive yield, Fleetwood appears to offer value longer-term given forecast earnings multiples according to RBS<\/span> of 10.9 times in FY12<\/span> and 10 times in FY13<\/span>. <\/p>\n

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