For proof that Australia's resources sector is undergoing a revival, look no further than the companies that service it. Fleetwood Corporation, which builds portable accommodation, has been a big winner from development of the North-West Shelf. Fleetwood shares have jumped from $1.66 at the start of 2002, to $3.08 on January 31, making it one of the market's best-performing small companies.
GOING MOBILE: Fleetwood Corporation seems set to prosper from resources and retirees Image: Michele Mossop
Although shares in Fleetwood are prone to large rises and falls, the company's earnings prospects seem to justify its price gains. With more gas projects planned, increased spending on the North-West Shelf, and price rises in iron ore, nickel and gold breathing life into the resources sector, demand for portable accommodation at remote locations is expected to rise.
Fleetwood has taken advantage of these buoyant conditions. In 2001-02, the company's net profit increased 70%, to $7.6 million, on turnover that rose 43%, to $166.7 million. The company expects a slightly more moderate result for 2002-03, largely because of the timing of contracts. The broker Burdett Buckeridge Young is expecting a 25% increase in revenue to $208.9 million and a net profit of $9.7 million.
Analysts are taking more interest in the company now that its market capitalisation has reached $123 million - making it big enough to warrant the attention of most small-company fund managers. But the experience is not new for Fleetwood. In 1994, when investment in gold mining surged, Fleetwood shares rose from 38¢ early in 1994 to 80¢ by the end of the year. Expansion of the Woodside Petroleum consortium's projects on the North-West Shelf and the corresponding increase in demand for Fleetwood's services also helped push the share price higher in 1996. It increased 117% during the year, to $2.08.
Robert Gee, an analyst with Paterson Ord Minnett, says the downturn in mining in 1997 hurt Fleetwood. "From then on, things went sour on them for a couple of years," he says. "But there is now a lot of leverage for them in the North-West Shelf. They have caravan parks in Karratha, which is likely to be the main site for the construction crews. The potential there for increased revenues is pretty huge.
"Managing director Greg Tate has said publicly that once the North-West Shelf really gets moving, the potential is there for the extension of projects over a five-year time-frame.
The market is fairly well aware of that and that is why the share price has reacted the way it has."
Fleetwood stock is tightly held by a small number of owners. The two largest shareholders are Colonial First State, with 17%, and Thorney, the private investment company of the Pratt group, with 12%. Other big holders include Tate, with 11%, and marketing director Steve Gill, with 6%.
Apart from the portable accommodation business, Fleetwood makes caravans for the recreational market. Its Coromal business is the second largest caravan manufacturer in the country, after Jayco. Camec, another division of Fleetwood, is the biggest supplier of caravan parts in Australia.
"The caravan sector in Australia is undergoing a huge period of growth," says Gunzburg. Adam Michell, a stock analyst at Burdett Buckeridge Young, agrees. "The growth in caravans has been about 15% a year for the past five years and most people who buy them are retirees," he says. "So when the baby boomers start retiring, demand for caravans should keep rocketing up and up. It underpins a strong growth profile for Fleetwood over the next five to 10 years."
Michell is positive about the stock, even at its current price. "Fleetwood has two very good factors underpinning its growth," he says. "First of all, an ageing population. When most people think of an ageing population they think health-care stocks, but Fleetwood is an alternative way of playing that trend. Second, you have the non-residential construction industry, which is likely to continue growing until about 2006. The company has done very well and it is one of our favorite smaller companies because it is exposed to such strong growth profiles."
Strong prospects
Why Fleetwood Corporation still has room to grow.
Fleetwood supplies caravans and portable accommodation to holidaymakers and the mining industry. An increased focus on domestic tourism and the ageing of the population is expected to lead to increased demand for caravans over the next 10 years. The likelihood of a resources revival should also help Fleetwood's prospects. It has a dominant position in the housing market for workers building projects related to the North-West Shelf, a key region for future spending by mining companies. Source: BRW
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Contents for this issue: BRW Vol. 25 No. 4
Further Reporter articles this issue: Resources: India, China compete in resources buy-up
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Gaming: All wagers on again
Rural industry: Wool shrinkage
Stockmarket: Market provider ponders life after debt
Resources: A golden opportunity for Rio Tinto to quit PNG
Derivatives: Exposed - gaps in risk hedging
Subscribe to BRW From Australia's BRW Thursday, 6 February 2003.
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