Intersuisse update just out:Fleetwood Corporation Limited FWD...

Intersuisse update just out:

Fleetwood Corporation Limited FWD Monday 25 August 2008

A strong result in FY08 from Manufactured Accomodation is set to continue

Recommendation: Buy for high yield and steady growth

Investment Rationale
This manufacturer of recreational vehicles and portable accommodation is set
to benefit from growth in the resources sectors, retirement and recreation.
Restructuring in FY05 and FY06 has lifted capacity and margins. Management
is experienced and conservative. FWD has strong cashflow generation
capacity, with minimal capital expenditure requirements. Competitive
advantages stem from its accomodation provided for resource projects, notably
the strategic location of its Searipple Village, and its ability to provide a variety
of recreational vehicles that meet different needs. A tight labour market in WA
continues to crimp margins. An annual 40¢ special dividend as well as the
ordinary dividend through FY10 makes FWD an attractive yield play.
Event
 FY08 NPAT was up 29% to $34.2m, ahead of our estimated $33.2m.
Revenue rose 10% to $344m and EBIT was 27% higher at $51.1m. A final
dividend of 15¢ and a special of 20¢ will be paid on 30 September, exdate
3 September.
 The Manufactured Accommodation (MA) division again posted a strong
result and has well and truly overtaken the Recreational Vehicles (RV)
division as the key contributor, accounting for 65% of group EBIT.
 MA increased revenue 18% to $150.8m and EBIT 62% to $33.0m. EBIT
margin expanded 6% to 21.9%, all the more impressive given cost
pressures and labour shortages facing the industry. Searipple village is
proving to be a quality asset. it has high margins and is strategically
located close to large resources projects in Karratha, WA.
 Tough trading conditions were reflected in the RV divisional results.
Revenue grew 3% to $192.5m but EBIT fell 10% to $19.5m after EBIT
margin deteriorated 160bps to 10.1%. Revenue growth was hampered by
high petrol prices, high interest rates and a poor performing share market
as baby boomers tightened the belt and petrol prices hit caravan holidays.
 Overall, EBIT margin rose by 2% from 12.8% to 14.8% of revenues.
 At year-end, FWD was using 60% of $40m bank facilities, with net debt to
equity of 12%. Interest was covered 26 times by EBIT, after $11.3m
depreciation and 5.7m operating lease costs. Operating cash flow was
$60m, mainly applied to property, plant & equipment $34m and dividends
$26m. Overall, a very strong balance sheet and cash producing machine.
Impact
 MA is set for another strong year, with FY09 earnings growth coming from
the Searipple expansion and recent 1,350 room contract win with Worsley
Alumina. Benefits from these contracts were not reflected in FY08.
 Deteriorating caravan demand fundamentals is preventing labour cost
increases from being passed on to customers; they are being absorbed.
 Earnings growth will be driven by the Worsley Alumina and Woodside
contracts and strong demand for portable homes in the MA division.
 MD Robert McKinnon noted that continuing high resource sector demand
should ensure strong levels of activity during FY09 FWD continues to
make improvements to its production methods.
Recommendation Impact
We continue to recommend FWD as a Buy for its high franked yield, likely to
be maintained although tending to lower payout ratios as EPS steadily grows.