question time for camden , page-7

I know this company quite well (know employees both low and high up on the engineering side). I can tell you that Coffey, and particularly its core geotechnical division is very well reputed. They are essentially the most popular and competitive place for new geotechnical civil engineering grads and have a lot of technical expertise. This business is also pretty busy (and if you look through the reports has always been profitable). The problem is I don't know anything about their other businesses- which are more of a drain!

The problem is the company poorly allocated their capital in an acquisitive splurge last decade, and are essentially having a lot of writeoffs and writedowns as a result of that. Have a brief look at commsec or etrade financials and you can see the ROE dropping from high 20s to under 10.

In terms of the current price, it is very cheap for a company that has the potential to generate as much profit as Coffey does. The big question is if the job cuts etc. are going to negatively impact profitability. Looking at debt situation, insolvency isn't an issue yet, but can easily become one in 1-2years time if Coffey can't maintain profitability.

I had bought a small position in mid 70s and am strongly thinking about adding a more substantial position now, as I believe Coffey's reputation and skill will at the worst make it a very attractive takeover target if debt becomes an issue. This stock is not without risks!

Good luck