Hot off the press. Agree with everything except i feel 4c div in FY15 v 3c forecasted by these guys.
Analyst Note Summary
Transfield announced a solid fiscal 2015 result, with operating revenue increasing by 2% to AUD 3.8 million and with underlying net profit after tax, or NPAT, falling by just 1% to AUD 72 million. Underlying NPAT was below our forecasts due to higher-than-anticipated interest and tax costs. The statutory NPAT of AUD 49 million included AUD 23 million in restructuring/legal costs. Transfield's growth strategy appears to be working; it is based on winning a higher share of outsourced contract work from the local defence, government and property sectors, combined with the company's exposure to the infrastructure sector. Transfield's underlying earnings before interest, tax, depreciation and amortisation, or EBITDA, margin increased to an impressive 7%, from 5.8% in the prior year.
Operating cash flow significantly improved to AUD 188 million, from just AUD 10 million in fiscal 2014, allowing Transfield to reduce net debt by AUD 102 million. However, no final dividend was declared. No specific fiscal 2016 NPAT guidance was given, but Transfield already has AUD 2.5 billion in contracted revenue for fiscal 2016 and expects to maintain underlying EBITDA at fiscal 2015 levels. Management remains focused on operating cost reductions and is targeting AUD 75 million-AUD 100 million in business improvement benefits during the next two years.
Subdued economic conditions and the cyclical downturn in the resources sector will combine to moderate earnings growth during the next two years. In addition, we remain concerned by Transfield's exposure to a major contract with the Australian Department of Immigration and Border Protection. We have lowered our revenue growth expectations and increased our capital expenditure assumptions, based on management's guidance and weaker market conditions. Our fair value estimate is lowered to AUD 1.40 per share from AUD 1.70 per share. Transfield's shares are undervalued by the market. We maintain our no-moat and high uncertainty ratings.
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