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 MARKET REPORTS |
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Analyst report - shares
"Stock of the week": Hastie Group Limited
September 17, 2007
Tim Morris, wise-owl.com analyst
Stock: Hastie Group Limited
Code: HST
In the long run, growth in earnings drives share prices higher, and when the market is nervous, stocks actually making money provide a safer option than more speculative plays offering ‘blue sky’ in the future. Hastie Group (HST), a mid size industrial company, with a market capitalisation of just under $500m is a stock that certainly fits the earnings bill.
Hastie Group is the leading provider of air conditioning, refrigeration, heating, ventilation and electrical services in Australia, New Zealand, and more recently, Dubai. The company has a long history and traces its origins back to the UK in the 1800s. Its Australian arm was established in 1970; however the company was only listed on the stock exchange in 2005. Hastie Group’s growth in earnings over the last 3 years has been steady, yet impressive, with underlying EPS increasing at an average annual compound rate of 53%. In the latest financial year sales were up 62% to $778m, underlying profit was up 66% to $22m, and underlying EPS was up 47% to 19.3c.
All divisions experienced strong growth over the last 12 months, with the biggest earner being the air conditioning installation division, contributing 45% or $354m of total revenues. Future growth from this segment should stem from the company’s recent expansion to the sweltering United Arab Emirates city of Dubai, where demand for cooling products is undoubtedly hot.
Hastie’s Middle Eastern foray is a little over a year old, and has therefore yet to contribute to the bottom line, but as the company is offering air conditioning in the desert, it seems unlikely to go wrong. After only two contract wins in the region, the order book is already $90m strong. These operations are set to add $5m to earnings in the current financial year, but it would appear that Hastie has only just scratched the surface in terms of opportunities in the region.
Much of the company’s recent growth has come via the acquisition path, picking up good businesses at attractive multiples. Recently Hastie acquired CDC Plumbing and Drainage for $18m cash, which is set to expand their business model to include hydraulics, commercial plumbing and drainage. The appeal of the transaction to share holders is the extra 10% or 1.9 cents that it is set to add to earnings per share in the current financial year.
Over the last 5 years Hastie has made 18 similar such purchases and currently has the debt capacity for at least $30m more. On last year’s earnings, the stock was trading on a PE of just over 20. Although this may not seem cheap, it is fair considering the company’s growth profile and track record of consistency. For value conscious investors who need proof of these prospects, consider the more relevant forward PE, which is below 15.
From a technical perspective the stock is looking very healthy, trading within a bullish channel for the last 12 months or so. Should the growth in earnings keep flowing through, we expect this upward trend to maintain its momentum.
Wise-owl.com currently has a buy recommendation on HST.
More articles from this week's CompareShares newsletter:
Stocks: American revolution comes full circle
Fundamentals: Paid off in dividends
Investing: The ultimate starter strategy for building wealth
Retirement: When work stops, but the bills don’t
Resident Trader: Taking a stab at trading forex
CFDs: The calm before the storm
Companies: Reporting season winners
Stock of the week: Blue skies for Hastie Group
International: Back to school for the US
Tim Morris is an analyst at Wise-owl.com, one of Australia's leading independent stockmarket research houses.
Please note that CompareShares.com.au simply publishes analyst reports on this page. The publication of these reports does not in any way constitute a recommendation on the part of CompareShares.com.au. You should seek professional advice before making any investment decisions.
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