We shouldn't write off Norfolk just yet.To get a better picture...

We shouldn't write off Norfolk just yet.

To get a better picture about trends, I prefer to normalise data to remove one-offs.

For ODG, the normalised EBIT for 1H12 was 12.1M after subtracting a one-off claims settlement of 5.6M. For 1H13 EBIT, I add back in the 5.5M due to delayed projects and non-recovered labour costs, to give $15.2M, as moving forward, ODG has time to adjust costs to align with workload. I also note that many of the delayed projects have already, or are likely to, restart as the economic and minerals outlook improves with growth in China and the USA. FMG's 155MT project has recently re-started.

So the normalised first half result for ODG is actually up significantly. Don't forget that Haden is already performing better as well. Work won for the NBN and national telecommunications networks is very positive for the future.

Then there are cost savings of $10M to come, of which $4M is being delivered in FY13. So this leaves another $6M upside in FY14.

My expectation for FY13 is for NPAT of around $19M and at least $25M in FY14, with some scope for this to be 10% higher. That gives an ROE of > 15% in FY13, which is great considering the cost of capital is currently decreasing.

Don't forget that a takeover of Norfolk is likely over the next 6 months, as Norfolk has decided it is too small to continue as a standalone listed entity. It just needs some more certainty on operational performance. If my predictions are close, then the share price should revert strongly on a higher P/E than the current 4.6 based on my projected NPAT of $19M. Add in a takeover premium, and we could be looking at a doubling in share price within 6 months. For example, UGL would be natural acquirer as the Norfolk businesses would benefit from UGL's existing operations. Also it is very cheap for UGL on relative P/E's.

I am of course interested in any other views, so please let me know where I might be wrong.