09/03/2004 - 21:00

Mid-cap players pick their mark

09/03/2004 - 21:00


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Mid-cap players pick their mark

Strong growth in resource and infrastructure investment has helped some of WA’s mid-cap industrial stocks rise above the pack. Mark Beyer reports on the varied yet highly successful strategies of Fleetwood, Integrated, Monadelphous and PCH.


THE development of new resources frontiers around the world is good news for PCH, which is enjoying remarkable success in the scaffolding hire business.

The most surprising feature of PCH’s success is that its biggest project is on the Caspian Sea, in Azerbaijan.

Managing director Jamie Cullen says the North Sea is in decline and the Caspian Sea is emerging as Europe’s major oil province.

BP’s single largest project – the $US10 billion ACG oil project – is on the Caspian Sea, and PCH is reaping the benefits.

PCH has about 500 staff on the ACG project and expects the work to continue at least until the end of 2007.

Not bad for a company that started in 1995 with the $1.5 million acquisition of a residential scaffolding hire business.

PCH’s biggest domestic project is Woodside’s Train 4 expansion, and it also has work in Thailand and Dubai.

Mr Cullen said PCH first went to the Caspian Sea region in 1999.

The company suffered some financial pain for two to three years but formed very good relationships with the major players in Baku.

“When the big projects came on, we had an office and logistics and most important of all the relationships,” Mr Cullen said.

With the Train 4 project due to wind down, Mr Cullen is confident of winning further contracts in Australia.

“Our track record of winning the big projects has been extremely good,” he said.

He said scaffolding supply was more than just a price-driven commodity business.

“Where the smarts come in is maintaining the gear properly,” Mr Cullen told WA Business News. “We have rigorous quality controls on purchasing and maintenance.

“On top of that is the expertise, particularly in the resources sector.

“There is a high degree of expertise involved.”

PCH’s latest results, for the six months to December 2003, show strong growth in net profit to $4.1 million, aided by a tax credit of $1 million.

Patersons analyst Nicholas Allan said profit was likely to be modestly lower in the second half but maintained a positive view.

“Our view of the company’s outlook for FY 2005 and beyond in regard to significant contracts continues to brighten,” Mr Allan said

Melbourne broking firm Lodge Partners noted that PCH has a history of winning contracts with Bechtel, the contractors for the Darwin LNG project.

“Winning the Bechtel contract would provide a perfectly timed transition for the gear currently located on the North West Shelf,” Lodge analyst Simon Fritsch said.

Both analysts rate the stock as a buy, with Mr Allan valuing it at 51 cents, while Mr Fritsch values it at 53 cents, well above current levels.

Fleetwood has produced consistent growth in sales and profits over the past decade, and its latest results were no exception.

In fact, the growth was ahead of market expectations, hence the jump in the share price to more than $7.00.

Mr Allan expects Fleetwood to continue delivering better results.

He is forecasting annual net profit to jump from $11.2 million in the 2003 financial year to $21.0 million in 2004 and $26.6 million in 2005.

The company is benefiting from strong demand for all of its products – caravans, especially from retirees, manufactured accommodation, particularly for big resource projects, and residential parks in Karratha and Port Hedland.

Mr Allan believes the company has managed acquisitions extremely well.

“The result for the recreational vehicles division underscores management’s ability to successfully identify, executive and integrate acquisitions and to generate ongoing synergies and margin improvements,” he said.

After two years of rapid expansion, Monadelphous once again exceeded market expectations with its interim profit report.

Its core business is engineering construction for the resources sector and its clients include BHP Billiton Iron Ore, WMC Resources, Woodside and Comalco.

The company is aiming to secure further work from the iron ore expansion projects planned by BHP Billiton and Rio Tinto, as well as oil and gas, alumina, nickel and coal projects in Western Australia, Queensland and the Northern Territory.

In addition, it is seeking to build sustainable revenue by bidding for long-term services contracts.

On the strength of the half-year result, DJ Carmichael analyst Steven Piotrowski has lifted his full-year profit forecast to $7.7 million (from $7.1 million previously).

Mr Piotrowski expects an even better profit of $10.5 million in 2005.

Integrated reported strong growth in interim net profit to $6.2 million, aided by a one-off $1 million tax adjustment. It achieved strong revenue growth in both of its core businesses.

Its workforce business, which provides casual and permanent labour to a wide range of industry sectors, lifted revenue by 16 per cent.

Total Marine Services, acquired in 2002, lifted revenue by 12 per cent.

It services the offshore oil and gas sector and is well positioned to benefit from activity in that sector.

In line with this commentary, Mr Piotrowski expects the company will post a full-year profit of $11.2 million, up from $10.2 million previously.


“Our track record of winning the big projects has been extremely good.”

-         Jamie Cullen


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