For a while late last week the market had it wrong about metal basher, Bradken.
The shares peaked at a new all time high of $8.98 and then investors seemingly had second thoughts and down went the shares, hitting $8.66 by last Friday.
With the company due to bring out its 2007 interim figures yesterday, it seemed to be yet another example of the well-informed getting out ahead of the bad news.
But the punters who sold off the stock last week got it wrong, badly and the shares hit a new all time high yesterday as they climbed well above $9, hitting a high of $9.40 before settling back and then rising again to close at $9.40.
The reason for the price surge was to be found in Bradken’s interim: sales up a 9 per cent, earnings before interest, tax, amortisation and depreciation up 42 per cent, margins higher and interim payout up 53 per cent.
And there’s a forecast of more in the second half of the 2007 year with CEO, Brian Hodges saying the group now expected a 30 per cent rise in earnings for 2006/07. That’s up from previous guidance for a 20 per cent rise.
“Given the excellent first six months of FY07, the strength of our underlying markets, the current order book and the expected contribution from recent acquisitions, Bradken is now anticipating around 30 per cent growth in EBITDA for the full year, up from the previous guidance of 20 per cent plus,” he said in a statement with the profit announcement.
The company manufactures and supplies products to the resources and rail industries: it’s an old fashion business but at the moment it’s earning very modern profits with a record after tax profit of $22.8 million for the December half, compared to the $16.1 million in the first half of the 2006 year.
Sales rose to $294.4 million for the six months and EBITDA jumped 24 per cent to $47.0 million.
Bradken has also been active in takeover activity, completing the acquisitions of West Australian group Wundowie Foundry and the UK-based Firth Rixson Castings while also buying a 19 per cent equity investment in US company AmeriCast Technologies, which it purchased in conjunction with the Castle Harlan buyout group.
Bradken said it still had “significant balance sheet capacity for further aligned acquisitions” in profitable domestic and global markets.
All deals will add to the earnings momentum in this half but especially in 2008.
Mr Hodges said the demand in resources and strength in company operations underpinned the healthy figures and the sharp rise in the interim payout, to 14.5 cents a share, from 9.5 cents previously, is confirmation the company doesn’t see a cloud on the horizon.
Bradken said each of its four divisions (Mining, Mineral Processing, Rail and Industrial) performed well with “Rail and Mining delivering particularly strong growth.”
“The Rail division, which achieved results well ahead of last year’s first half, recently received a letter of intent for the supply of coal wagons commencing in the fourth quarter of FY07. This will further underpin Bradken’s FY07 result and provide a solid start for FY08.
“In the Mineral Processing business, margins improved despite lower sales. Mr Hodges said that while the Mineral Processing division was affected by short-term mine production and consignment stock consumption issues, the other divisions servicing the resources sector remained strong.
Mr Hodges added that capital expenditure for the 2007 financial year would be approximately $50 million. “We expect capital expenditure will remain at this level throughout 2008 and 2009 as Bradken implements further upgrades to key facilities.”
“In the last six months, both our foundry production and fabricated product manufacturing capacities increased due to capex initiatives and acquisitions and we are confident that Bradken can continue to expand its capacity to meet the future growth potential of its underlying customer base.”
The issue of skilled labour shortages has re-emerged this half in the areas of machining, moulding and pattern making. “We are sourcing and training labour locally wherever possible and also recruiting from offshore,” Mr Hodges said.
