##{"id":60160,"date":"2012-06-27T10:31:48","date_gmt":"2012-06-27T00:31:48","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2012\/06\/27\/uxc-offering-attractive-it-exposure-with-yield\/"},"modified":"2012-06-27T10:31:48","modified_gmt":"2012-06-27T00:31:48","slug":"uxc-offering-attractive-it-exposure-with-yield","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2012\/06\/27\/uxc-offering-attractive-it-exposure-with-yield\/","title":{"rendered":"UXC Offering Attractive IT Exposure, With Yield"},"content":{"rendered":"

\n\t – Moelis<\/span> rates UXC<\/span> as a Buy
\n\t – Company well placed to compete with multinationals in IT sector
\n\t – New contracts to boost earnings
\n\t – Stock attractively valued at current levels<\/strong><\/p>\n

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

\n\tThe IT services environment has been challenging for some time, wiith<\/span> companies in the sector struggling as customers have postponed or decided to cancel IT spending. <\/p>\n

\n\tUXC<\/span> ((UXC<\/span>)) operates in this sector, offering business solutions and applications and IT consulting services to medium to large entities in both the private and public sectors. With a market capitalisation<\/span> of around $175 million, UXC<\/span> receives little coverage in the market. There is no coverage from the eight brokers in the FNArena<\/span> database.<\/p>\n

\n\tOne broker to cover the stock is Moelis<\/span>, which rates UXC<\/span> as a Buy with a price target of $0.65. UXC<\/span> is currently the only Australian IT play carrying a Buy rating from Moelis<\/span>, with the stockbroker viewing the company as a viable alternative to multinationals in terms of winning larger size contracts given the scale and breadth of the services offered by UXC<\/span>.<\/p>\n

\n\tRecent evidence supports this, as this month UXC<\/span> has announced a number of new and significant key strategic contracts with Transport for NSW, Hills Industries ((HIL<\/span>)), GrainCorp<\/span> ((GNC<\/span>)) and Toyota. Moelis<\/span> estimates these contracts are valued at $34 million over the delivery period, most of which are within two years. Further contract wins are possible given results of a number of other major tenders are yet to be announced.<\/p>\n

\n\tA meeting with management confirmed to Moelis<\/span> current earnings guidance of an EBITDA (earnings before interest, tax, depreciation and amortisation<\/span>) result well ahead of the $15.3 million delivered in the previous corresponding period as realistic. Consensus EBITDA forecasts for the full year project a result of better than $30 million. This implies earnings per share (EPS) growth of 8-10% reports Moelis<\/span>.<\/p>\n

\n\tFurther growth in earnings remains possible as Moelis<\/span> notes all divisions in UXC<\/span> are current operating below optimal utilisation<\/span> rates. This is evident from profit before tax margins, which for consulting stand at 6.4% against a stated medium-term target of 12%, while applications are delivering 9% against a target of 11%.<\/p>\n

\n\tCost cutting should also support earnings growth, Moelis<\/span> noting some cost out measures such as staff cuts have now been fully implemented and should deliver around $10 million in gross cost savings for UXC<\/span>.<\/p>\n

\n\tThis expected earnings growth is reflected in the forecasts of Moelis<\/span> given the expectation for EPS of 5.4c this year, rising to 6.4c in FY13<\/span> and 7.6c in FY14<\/span>. This forecast translates to a FY13<\/span> earnings multiple of less than nine times.<\/p>\n

\n\tFor Moelis<\/span>, such a multiple is undemanding given UXC<\/span> is well positioned to delivered sustained earnings growth in coming years. This supports the Buy rating, notwithstanding the fact UXC<\/span> shares have risen by 40% year to date this year.<\/p>\n

\n\tAdding to the investment equation is an attractive yield. On Moelis's<\/span> dividend expectations of 2.8c this year, 3.3c in FY13<\/span> and 4c<\/span> in FY14<\/span>, UXC<\/span> should yield 5% in 2012, 6% in FY13<\/span> and more than 7% in FY14<\/span>. Dividends are expected to be fully franked. <\/p>\n

\n\tShares in UXC<\/span> closed yesterday at $0.555, which compares to a range over the past year of $0.385 to $0.70. <\/p>\n

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\n\tFind out why FNArena 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":"