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 MARKET REPORTS |
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Analyst report - shares
"Stock of the week": Saferoads Holdings
December 10, 2007
Tim Morris, wise-owl.com analyst
Stock: Saferoads Holdings
Recommendation: BUY
Code: SRH
Founded in 1992, Saferoads Holdings (SRH) is involved in the road safety business, offering products designed to protect motor vehicle drivers, pedestrians, and road workers. The company's products include guide posts, flexible signage, crash cushions and barriers, workzone, traffic calming, traffic control products and public lighting.
Saferoads Holdings is well poised to benefit from the ramp up in government infrastructure spending taking place around the nation, as over 50% of business is generated either directly or indirectly from various arms of government. This provides a secure operating environment along with a strong growth profile. Other wholesale customers include hire and road construction companies.
Since listing in December 2005, the company has been a reliable, but steady out performer, with management building a reputation for exceeding their targets. In the last financial year management blew their 15% growth target out of the water as earnings increased more than 50%, mostly from organic growth in existing businesses. Net profit was up 55% to $4.46m, and diluted EPS was up 41.6% to 17.7c – driven by a 53% rise in revenues to $40.7m, of which 35% was attributable to organic growth.
Saferoads organic growth potential remains strong as it has recently established a national sales network from which it can push beyond its traditional Victorian base. The company has historically performed well in the Victorian market and the focus for 2007-08 will be to grow the business in interstate markets. The last financial year saw Saferoads bolster its national marketing presence, and the company now has sales offices and warehouse premises in all states except for Tasmania. This national network has the potential to support strong organic sales growth in the years ahead, and provides synergies for future acquisitions involving smaller localised businesses.
Saferoads has only made one acquisition to date, Swift Tech Solutions Pty Ltd, which is a Drouin based manufacturer and supplier of decorative and standard street light poles, purchased in October 2006. Now fully and successfully integrated under the Saferoads umbrella, Swift Tech has so far boosted the company’s total revenue more than 10% by recording street lighting sales of $4.75m for the 9 months of operation post acquisition. Although a full, 12 month contribution from Swift Tech is expected to contribute 15% to overall sales for 2007-08, there underlies an even greater potential as Swift Tech’s products are able to be promoted beyond its traditional Victorian market via Saferoads national marketing network. In May, record orders for Swift Tech’s products had been received.
Although Saferoads latest result was strong, it was impacted by significant one off integration costs associated with the acquisition. The absence of these costs and production cost savings arising from the amalgamation of Swift Tech’s lighting production operations into the Saferoads manufacturing; operations are set to assist earnings growth in the year ahead.
A highlight from this years result was the resilience of their profit margins, which should continue to be preserved as the company maintains their aggressive supply chain management strategy, whereby materials and products are sourced domestically and overseas, to maintain market competitiveness.
The year finished with strong forward orders for their temporary safety barrier products, which include the ‘Ironman’ steel barrier, the ‘Triton’ plastic water filled barrier, and the newly introduced ‘T-lok’ portable concrete barrier. Demand for permanent road safety barriers such as the guard rail and the ‘Gibraltar’ wire rope system also remains strong, with orders carried forward already in excess of revenue for 2006-07.
Saferoads current strategic plan targets revenue and a market capitalisation of $100 million by the end of fiscal year 2011. If recent performances are maintained in any way, the company may have to set some new goals well before this time. The outlook for the year ahead is very encouraging given that both federal and state Government budgets have maintained strong road spending initiatives.
Tim Morris is an analyst at wise-owl.com, one of Australia's leading independent stockmarket research houses. Click here for your complimentary report.
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