august 25th, page-3

Update just out from Intersuisse:

Transfield Services Limited TSE Tuesday 26 August 2008

Robust growth continues and guidance is for 10% to 20% profit growth

Recommendation: Buy

Investment Rationale
The reliable earnings stream brought about by long term and integrated
services contracts plus low risk infrastructure projects makes TSE an attractive
investment prospect. Services growth stems from renewal of long term
contracts, acquisition of new customers and development of relationships in
new areas. TSE has an extremely good record of contract retention. Much of
the services work carried out is integrated with the customer operations and
considered 'mission critical' and is therefore evergreen. A willingness to
establish joint ventures increases the chance of gaining work in new areas.
The 49% stake in Transfield Services Infrastructure Fund (TSI) provides an
income stream through dividends and management fees plus a pipeline of
operations and maintenance contracts via the assets in that fund.
Event – Strong FY 08 Result as Expected
 NPAT was $106m pre-amortisation, in line with guidance, on 31% higher
revenues of $3.0bn. The result was assisted by acquisitions. Reported
FY07 NPAT was $110.4m with income from TSI and its $26.9m sale
gains, and an underlying $88.4m implying a 19.9% growth. Organic
revenue growth was 15%. Underlying EPS was 53.5¢, up slightly but with
a 7¢ ($24.2m) TSI distribution up 13.9% at 60.5¢.
 Joint ventures contributed strongly, with TSE's share of profit rising $52m
from $5m. Commencement of Canadian oil sands asset management
work was a major driver.
 Services Australia EBITA rose 21% to $86m on 12% higher sales and
improved margins from 3.9% to 4.2%. North American EBITA increased
72% to $52m, the global total up 33% to $151m with overall 5% margin.
 EBIT margin increased from 7.0% to 7.2%, reflecting the increased
contribution from higher margin US business and improved Australian
margins. ROE is a healthy 16%.
 Franked dividends for the year were up 16% to 36¢ with an 18¢ final.
 Cash flow was strong. Operating cash flow increased 22% to $216m,
comfortably covering capex of $68m. Debt was refinanced in June 2008, a
net $584m mainly in US$ matching US acquisitions; interest covered 5.2x.
 FY08 EBITA split in $m by region: Australia 85.8 North America 51.9
NZ 14.7 Other 4.4
 FY08 Revenue $bn by industry: Resource/industrial 1.43 Infrastructure
Services 1.20 Property & Facilities Mgt 1.03 Total 3.66, incl. 0.66 JV etc.
Impact
 Guidance was given for NPAT growth of 10-20% in FY09 which sees full
year contributions from acquisitions, new alliances (61% of revenue is
alliance or cost reimbursable) and the Canadian JV.
 MD Peter Watson noted that acquisitions are delivering, USM, Horizon
and Whelan’s have an integrated facilities management solution, and
performance was ahead of expectations in the Canadian oil sands
business. Work in hand rose 21% to $11bn, providing strong earnings
momentum and a solid foundation for future growth.
Recommendation Impact
We recommended Accumulate on 28 February at $11.21 and featured TSE in
our 18 July Bourse Report at $7.60 as a Buy to $9.00. The result strengthens
our positive view. Buy competent growth on attractive fundamentals.