##{"id":60387,"date":"2012-08-08T13:43:43","date_gmt":"2012-08-08T03:43:43","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2012\/08\/08\/bradken-delivers\/"},"modified":"2012-08-08T13:43:43","modified_gmt":"2012-08-08T03:43:43","slug":"bradken-delivers","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2012\/08\/08\/bradken-delivers\/","title":{"rendered":"Bradken Delivers"},"content":{"rendered":"

\n\t– Bradken<\/span> full year result meets guidance
\n\t– Brokers viewed the result favourably<\/span>, lower gearing well received
\n\t– A lack of specific guidance limits changes to earnings estimates
\n\t– Buy ratings continue to dominate for the stock<\/strong><\/p>\n

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

\n\tBradken<\/span> ((BKN<\/span>)) had guided to full year earnings in a range of $95-$102 million and yesterday delivered on this guidance with a full year net profit of $100.6 million. Earnings from the Rail and Engineered Products divisions were better than expected, while interest charges were also lower.<\/p>\n

\n\tA highlight of the result was an improvement in operating cash flows, as Goldman Sachs notes when combined with lower total capex<\/span> spend this allowed gearing as measured by net debt to EBITDA (earnings before interest, tax, depreciation and amortisation<\/span>) to fall to 2.0 times against a forecast of 2.5 times.<\/p>\n

\n\tThe fall in gearing was well received by the market, RBS<\/span> Australia noting this has allayed concerns Bradken<\/span> may have needed to undertake a capital raising at some point.<\/p>\n

\n\tFor JP Morgan, the improvement in earnings for the Rail division shows management is making good progress in moving past problem contracts. At the same time, Bradken<\/span> continues to leverage strong demand, which is being driven by higher mine production. <\/p>\n

\n\tOne offset in the view of BA Merrill Lynch is the weak macro environment, as this has the potential to weigh on demand in the Industrial and Rail divisions in particular. This resulted in management at Bradken<\/span> offering conservative outlook commentary for the coming year, while avoiding any specific earnings guidance. <\/p>\n

\n\tThis lack of specific guidance has meant changes to broker earnings forecasts for Bradken<\/span> have been relatively modest. With Bradken<\/span> announcing the deferral of some new capex<\/span> spending, Deutsche Bank has trimmed its EBITDA forecasts by 4% in FY13<\/span> and by 7% in FY14<\/span>. This has been offset by lower depreciation and amortisation<\/span> and interest expense assumptions, meaning little change to net profit after tax forecasts.<\/p>\n

\n\tMoelis<\/span> has been more positive and lifted earnings per share (EPS) forecasts by 5% through FY15<\/span>, reflecting in part expectations of a solid uplift in margins in the Rail division. Goldman Sachs has gone the other way and trimmed EPS estimates by 4-9% through FY15<\/span>, driven by cuts to expectations for the Rail and Mining divisions.<\/p>\n

\n\tConsensus EPS forecasts for Bradken<\/span> according to the FNArena<\/span> database now stand at 73.2c for FY13<\/span> and 83.4c for FY14<\/span>. Moelis<\/span> and Goldman Sachs are not in the database, the former forecasting EPS for Bradken<\/span> of 76.1c and 82c<\/span> respectively and the latter 75.5c and 91c<\/span>. Forecasts compare to EPS of around 60c<\/span> achieved in FY12<\/span>.<\/p>\n

\n\tChanges to earnings forecasts generated changes in price targets, as the consensus price target for Bradken<\/span> in the FNArena<\/span> database now stands at $7.70, down from $7.96 previously. Targets range from Macquarie at $6.21 to JP Morgan at $8.62. Moelis<\/span> has a target of $6.50, while Goldman Sachs's target is $6.30.<\/p>\n

\n\tAside from Macquarie, who has stuck with a Neutral rating, the other six brokers to cover Bradken<\/span> in the FNArena<\/span> database rate the stock a Buy. For JP Morgan this reflects a positive earnings outlook due to commodity demand remaining strong and Bradken's<\/span> attractive exposure to this via a global manufacturing platform and good range of product lines. <\/p>\n

\n\tAs well, JP Morgan suggests the strong balance sheet of Bradken<\/span> will allow management to pursue growth opportunities. BA-ML also sees upside, pointing out Bradken<\/span> is now near the end of a significant investment program. This suggests returns should improve as higher margin mining products and new capacity comes on line. <\/p>\n

\n\tValuation is also supportive in BA-ML's view as with the stock trading on a FY13<\/span> earnings multiple of around 7.9 times at present, concerns such as the weak macro outlook and execution of future growth plans are already being discounted by the market. <\/p>\n

\n\tMoelis<\/span> agrees, suggesting a FY13<\/span> earnings multiple of less than eight times, which implies a discount of more than 35% to the ASX<\/span> Small Industrials, is undemanding. <\/p>\n

\n\tInvestors in Bradken<\/span> stand to benefit not only from a solid earnings growth outlook based on consensus EPS forecasts, but also an attractive dividend yield. Consensus dividend forecasts show an expected increase in payout from 41c<\/span> in FY12<\/span> to 45c<\/span> in FY13<\/span> and 51c<\/span> in FY14<\/span>, which suggests yields of 7.9% and 8.9% respectively. Dividends are expected to be fully franked.<\/p>\n

\n\tShares in Bradken<\/span> today are higher in a stronger overall market and as at 1.25pm the stock was 10.5c higher at $5.845. This compares to a range over the past year of $4.62 to $8.68, the current share price implying upside of more than 32% relative to the consensus price target in the FNArena<\/span> database.<\/p>\n

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