Abigroup's building value

The latest annual report features a double-page spread covering rock legends Kiss playing at the Dome on one of their many farewell tours.

Unfortunately, the Dome's financial performance hasn't been as glamorous. It lost $9.3m for the year and the red ink will flow again this year. It's an albatross that will weigh the company down for the foreseeable future.

Core business

But there's more to this business than a struggling entertainment complex. Its core has always been in construction, a market that is both tough and cyclical. At the moment the industry is in a lull and the short-term outlook isn't bright.

However, over the next two to three years, things look better with some big contracts up for grabs. Abigroup has jumped into bed with Leighton to bid for the $1.4bn Western Sydney Orbital project.

With the rocket scientists from Macquarie Bank working on the financial side, the consortium has a big hat to throw in the Orbital ring.

None of this will rescue revenues for next year, though, when total turnover is expected to be between $600m and $650m compared to this year's $749m.

But as we've said in this issue's feature, there are two parts to the investment equation. So let's try and line up the lacklustre outlook with what Mr Market is offering us.

This year's total dividend payout was 12-cents fully franked. At today's prices that's a dividend yield of 5.8%. Not bad. What's more, we expect that level to be held next year, which is why we included Abigroup in our income portfolio.

The PER is a low 5.4 but this year's profit was inflated by a $5.3m tax credit and we're expecting a fall in profit to around $8m next year, or 20.2 cents per share.

This would still comfortably cover an expected dividend payout of 12 cents per share. Our figures are much lower than other forecasts but we don't mind being on the conservative side.

Assets rise

Abigroup's net assets rose more than 83% to $106.7m in 2001, due mostly to the revaluation of its 15m shares in Hills Motorway. These had previously been carried at cost so the value was there before, it just wasn't reflected in the accounting numbers.

This means that any ratios involving net assets now look much healthier. This is why we resist requests to publish a list of blanket ratios. Without understanding the facts behind the figures, they're often meaningless.

So where does all this leave us? We expect Abigroup to have a tougher year than most people are predicting in 2002, which could see the stock price fall. That's why our share price risk rating is three and a half.

Long-term view

However, on a longer term view, Mr Market's current offer looks pretty attractive, to us at least, especially if the company announces a major contract win.

The shares have hardly changed since issue 89 (Long Term Buy - $2.10) and neither has our recommendation. For its potential re-rating on any good news and the attractive dividends, Abigroup is a LONG TERM BUY.