RCR reaching towards $50m goal

Listed engineering company RCR Tomlinson has capped off a busy 12 months by making its third acquisition and lifting its market capitalisation towards its goal of $50 million.

RCR last week announced the $6.5 million acquisition of Welshpool company Laser and Allied Cutting Services, following earlier purchases of Perth company Austheat for $3.3 million and Newcastle company Stelform for $6.85 million.

Managing director John Linden said the company set itself on a growth path last year, with the goal of lifting its market capitalisation and liquidity so that it could win institutional investor support.

He said the board also had a goal of lifting net profit, and to date had met all objectives.

“It’s absolutely to plan, it couldn’t have gone any better,” Mr Linden told WA Business News.

Mr Linden has been on a roadshow this week with broking firm Hartleys seeking to win institutional backing for a $10 million capital raising.

A key part of his presentation is the prospect of higher profits.

RCR last week lifted its net profit forecast to $5 million for the year to June 2005, which would double its profit from last financial year.

This was its third profit upgrade in recent months and the latest forecast equates to earnings per share growth of about 35 per cent.

Mr Linden said RCR had rejected some acquisition opportunities and only proceeded with purchases at attractive prices.

He said most transactions with competing bidders were at a price of four to five times underlying earnings, whereas RCR had managed to complete its acquisitions at about three times underlying earnings.

The vendors of Stelform and Laser were both retiring and wanted a new owner who would secure the employment of existing staff.

“They selected us as buyers rather than the other way around,” he said.

As well as its acquisitions, RCR’s profits have been bolstered by new orders in its existing business.

The latest news on that front was the announcement of a three-year maintenance contract with mineral sands miner Iluka Resources, which is expected to lift the value of work from $3 million to $9 million a year.

Mr Linden said RCR’s next acquisition was likely to be much larger in scale than its previous moves.

In a research note, Hartleys analyst Chris Bossong said the key drivers of RCR’s share price would be increased margins, further contract wins and possible acquisitions.

Mr Bossong is tipping a net profit of $5.2 million in the 2005 financial year and $6 million in 2005.