Fleetwood rides high on the 3Rs

FLEETWOOD Corporation managing director Greg Tate has a simple way of explaining the company’s business. It’s in recreation, resources and retirement – three of the fastest growing segments of the Australian economy.

This formula has worked a treat for Fleetwood, which has increased profits for each of the past 10 years and lifted dividends for the past nine years.

Its latest result, for the year ended June 2003, was a 48 per cent increase in net profit to $11.2 million.

The annual dividend was also higher at 14 cents per share, from 12 cents previously.

Mr Tate is wary of specific forecasts but is clearly upbeat about future prospects.

“The best of it is still to come,” he said.

Mr Tate expects “a better year” in 2004 and even higher profits in 2005, as the company benefits from planned resource projects in WA’s North West and the rising demand for recreational vehicles.

The company’s core business was caravan retailing when it originally listed on the stock market in the late 1980s.

It has sold out of that business and is now one of Australia’s biggest manufacturers of caravans, via Perth-based Coromal Caravans and the recently acquired Windsor Caravans in Melbourne.

The group manufactures up to 60 caravans a week, giving it a 20 per cent share of the Australian market.

Fleetwood’s recreational vehicle division, which also includes parts suppliers Camec and Car-Van, is expected to contribute 60 per cent of earnings before interest, tax and amortisation this year.

Mr Tate said the caravan market has been growing at 15 per cent a year and he didn’t see any abating of demand. In fact he anticipates retiring baby boomers will help to boost demand.

Fleetwood’s second major division is manufactured homes, which supplies accommodation to major resource projects.

Its clients include Rio Tinto, Woodside, Burrup Fertilisers and BHP Billiton, and its latest contract, worth $9.5 million, was an accommodation village for 800 people for the Darwin LNG project.

Mr Tate emphasises that the company is not entirely reliant on the resources sector.

For instance, an accommodation village originally built for Worsley Alumina was transferred to the Baxter detention centre in South Australia for the Federal immigration department.

The prospect of more big resource projects in the North West, such as the Methanex and GTL Resources gas projects on the Burrup Peninsula, provides upside potential for the company.

These projects would also boost Fleetwood’s parks division, which provides accommodation in Karratha and Port Hedland.

Euroz analyst Justin Stewart said the market had fully priced Fleetwood’s current earnings prospects, with the prevailing share price in line with his valuation of $4.60.

He has forecast an increase in net profit this year to about $14 million and remains open to the possibility of an upgrade.

“We expect growth through acquisitions or another couple of projects in the North West,” Mr Stewart said.

“The resources sector in particular could boost their earnings over the next few years.”

Broking firm Burdett Buckeridge Young, which was joint manager of Fleetwood’s $17 million capital raising in May, is even more positive.

It has forecast a net profit of $15.7 million this year and $19.7 million in 2005.

“The key growth area [and primary basis for investment] is the recreational vehicles division, given the longer term growth prospects offered by its caravan and caravan components operations,” it says in a report.

BBY expects the company will benefit from synergies and improved margins from the integration of its Coromal and Windsor caravan businesses.

“We have upgraded earnings forecasts following this result … although we consider there is upside from new large scale manufactured accommodation contracts and faster than expected cost-savings from the caravan operations.”