##{"id":59198,"date":"2011-11-23T12:00:20","date_gmt":"2011-11-23T01:00:20","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2011\/11\/23\/is-monadelphous-now-too-expensive\/"},"modified":"2011-11-23T12:00:20","modified_gmt":"2011-11-23T01:00:20","slug":"is-monadelphous-now-too-expensive","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2011\/11\/23\/is-monadelphous-now-too-expensive\/","title":{"rendered":"Is Monadelphous Now Too Expensive?"},"content":{"rendered":"

\n\t– Monadelphous<\/span> delivers positive AGM<\/span> commentary
\n\t– Brokers lift earnings estimates and price targets
\n\t– Valuation keeps broker opinions divided<\/strong><\/p>\n

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

\n\tTough operating conditions mean an acceleration in revenue growth is not common among ASX<\/span> listed stocks at present. One stock to buck this trend is Monadelphous<\/span> ((MND<\/span>)), one of the leading structural and mechanical contractors to the resources sector.<\/p>\n

\n\tAGM<\/span> commentary from Monadelphous<\/span> yesterday indicated at least 15% revenue growth should be achieved in FY12<\/span>. UBS notes solid margins should also be maintained, which indicates management are not being forced to cut margins to generate this growth in revenues.<\/p>\n

\n\tThe revenue growth expectations of management are better than the 12.9% growth UBS had been forecasting. This has prompted the broker to lift earnings per share (EPS) estimates by 2% through FY14<\/span>. <\/p>\n

\n\tOthers in the market have reacted similarly, JP Morgan increasing its EPS estimates by 2-4% through FY14<\/span> and Deutsche Bank lifting its profit forecasts by 5% for FY12<\/span> and by 7% for FY13<\/span>. Macquarie's estimates have increased by a similar amount to Deutsche Bank. <\/p>\n

\n\tConsensus EPS estimates for Monadelphous<\/span> according to the FNArena<\/span> database now stand at 121.5c<\/span> for FY12<\/span> and 142.3c<\/span> for FY13<\/span>.<\/p>\n

\n\tThe changes to earnings forecasts have seen similar adjustments in price targets. JP Morgan's target increases 40c<\/span> to $15.77 and UBS has lifted its target to $21.25 from $20.75. Macquarie makes the largest increase in price target to $19.83 from $18.82, while Deutsche has increased its target by 70c<\/span> to $20.70. <\/p>\n

\n\tThe consensus price target according to the database now stands at $20.13, up from $19.61 prior to the AGM<\/span> update. Targets ranging from JP Morgan at $15.77 to RBS<\/span> Australia at $23.09.<\/p>\n

\n\tDespite increases to forecasts and price targets, opinions on Monadelphous<\/span> remain mixed. UBS continues to rate the stock as a Buy, expecting the combination of strong cash flows, triple digit returns on capital, a net cash position and a strong earnings outlook will continue to deliver share price outperformance<\/span>. This should be achieved despite a valuation premium in UBS's view.<\/p>\n

\n\tDeutsche Bank estimates at current levels Monadelphous<\/span> is trading at a 35% premium to the mining services sector average. As a result, while offering one of the better quality exposures to the sector and potentially a longer cycle than others, Deutsche sees the solid earnings outlook as already priced into the stock. Macquarie similarly rates Monadelphous<\/span> as Neutral.<\/p>\n

\n\tJP Morgan is at the other end of the spectrum, taking the view the current valuation of Monadelphous<\/span> factors in all the potential upside of solid earnings growth expectations and a strong financial position but doesn't account for any of the risks such as shortages of skilled labour<\/span> impacting on operations.<\/p>\n

\n\tFor JP Morgan there is better value exposure to be had via the likes of UGL<\/span> ((UGL<\/span>)) and Ausdrill<\/span> ((ASL<\/span>)), meaning an Underweight rating on Monadelphous<\/span> has been retained. Overall, the FNArena<\/span> database shows Monadelphous<\/span> is rated as Buy twice, Hold twice and Underweight once.<\/p>\n

\n\tShares in Monadelphous<\/span> today are slightly weaker and as at 11.35am<\/span> the stock was down 3c<\/span> at $19.27. This compares to a trading range over the past year of $15.30 to $22.40. The current share price implies upside of around 4.6% to the consensus price target in the FNArena<\/span> database.<\/p>\n

\n\t <\/p>\n

\n\tFind out why FNArena<\/span> subscribers like the service so much: "Your Feedback (Thank You)<\/a>" – Warning this story contains unashamedly positive feedback on the service provided.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"