Investment rating is a BUY....Huntleys summary below interesting reading.
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 (TSI) provides a steady income stream through dividends and management fees plus a pipeline of operations and maintenance contracts via the assets in that fund.
Debt has been refinanced to 2012. A new US$367m debt facility maturing in 2012 has been arranged. On the company's numbers, EBITDA/net interest has improved from 4.8x (on a proforma basis, using A$/US$0.70) to 6.5x. This will further improve through the retail equity issue. Net debt/equity improves from 107% to 63%.
Management reaffirmed AGM guidance for FY09 NPAT growth around 10%. Work in hand is at a record $12.3m, around 80% of which is with government and blue chip companies including Transfield Services Infrastructure Fund. The impact of the decline in capital expenditure across the economy is moderated by the high proportion of ongoing maintenance and long term capital projects underway. Some $300m in new work was announced last week across power, water and oil & gas industries
Our FY09 NPAT forecast drops from $119m to $117m. FY09 EPS falls from $0.60 to $0.39. We anticipate 16c dividends this year, providing an attractive 12% fully franked yield
TSE Price at posting:
$1.32 Sentiment: None Disclosure: Not Held
