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 MARKET REPORTS |
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Analyst report - shares
Wise-owl.com "Stock of the week": Transpacific Industries
July 14, 2007
Tim Morris, Wise Owl analyst
Stock: Transpacific Industries
Code: TPI
Recommendation: BUY
Transpacific Industries is a waste management solutions and industrial cleaning company which was spun out of a trucking company known as Western Star in 2005. Investors who participated in the IPO will be smiling, as just over two years have passed and the share price has not looked back, rising from the offer price of $2.40 to current levels over $13.
TPI is chaired by Terry Peabody, one of Australia’s richest men with an estimated wealth of $1.1bn. He has been involved in TPI’s former parent, Western Star trucks since 1983, and was instrumental in the formation of Western Star’s waste management operations from which TPI originated. TPI’s CEO, Howard Wilson is also of Western Star pedigree, and has held the reigns at Transpacific since 2003; prior to its IPO and throughout its phenomenal run as a publicly listed company.
Underpinning TPI’s share price performance has been strong profit growth and a growing reputation for delivering on earnings guidance. After notching up a 60% increase for the 2006 financial year, the company expects this year’s net profit to be up 115% to $102.5m.
This performance has come off the back of solid sales revenue, which has been boosted by a string of acquisitions. The most significant of these has been the Cleanaway business formerly owned by Brambles, and most recently the private equity group, KKR. The purchase price of $1.25bn has been questioned as being too high, as both of the two previous owners struggled to extract value from the business. However TPI’s experience in the waste management arena should ensure that full synergies are realised, and the company has flagged the deal as EPS accretive in the 2008 financial year.
Forecasts of the company’s up coming full year result place it on a forward PE of just over 30. This may seem expensive on face value; however, we feel it is justified given the company’s earnings growth prospects over the next few years and the management team’s track record.
In addition to these fundamentals, the stock should benefit from its leverage to the growing green movement, as its waste management solutions promote sustainability by reducing one’s ecological footprint. Transpacific’s emotional appeal does not end there. It also crosses the current resources boom given that the company’s operations service the mining, shipping, transport, construction, water, oil, and gas industries. This combination of strong management, solid fundamentals, and positive sentiment should see the stock outperform its peers in the ASX200 over the next 12 months.
Wise-owl.com currently has a buy recommendation on Transpacific Industries.
For the full report and further wise-owl.com recommendations and strategies, please click here for your free wise-owl.com trial.
Wise-owl.com is one of Australia's leading independent stockmarket research houses. It empowers all levels of investors and traders with education, advice, actionable strategies and risk management techniques. Its investment philosophy is based on a combination of quantitative, fundamental and technical analysis that has been proven over the years to produce very consistent and powerful returns.
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