Monadelphous: Results 2012
Recommendation
If there’s a slowdown in the resources sector, no one told Monadelphous, which released cracking full year results. Net profit after tax leapt 45% to $138m, which included more than $10m of gains from asset sales. On an underlying basis, profits were up 33% to $126m. From underlying earnings per share of 142.4 cents, up 31% from last year, a final fully franked dividend of 75 cents was declared (est. ex-date 10 Sep), taking full year dividends to 125 cents per share. Despite generous dividends the business continues to hoard cash, finishing the year with net cash of more than $150m.
Full year to 30 June | 2012 | 2011 | Change (%) |
---|---|---|---|
Revenue ($m) | 1,897 | 1,444 | 31 |
Underlying EBITDA ($m) | 196.5 | 153.3 | 28 |
Underlying net profit ($m) | 126.0 | 95.1 | 33 |
EPS (cents) | 142.4 | 108.8 | 31 |
DPS* (cents) | 125 | 95 | 32 |
Franking (%) | 100 | 100 | N/A |
* Final dividend of 75.0 cents |
It’s a result that is hard to fault and although the market reacted enthusiastically we remain unmoved. Monadelphous has benefited from an unprecedented investment boom that has flattered past results and now threatens to end. The company may be the best in its business, but its business is still cyclical. Falling commodity prices will undoubtedly lead to some big resources projects being cancelled, especially in coal and iron ore—two sectors that have historically been profit engines for the company. BHP Billiton, Rio Tinto and Xstrata have already signalled intentions to cut new developments.
Offsetting this potential loss is Monadelphous's impressive energy business that shows no signs of slowing down. Unlike iron ore and coal, where prices are volatile and investment dollars fickle, LNG developments offshore Western Australia and in Queensland are sold on 20-year contracts and cannot be cancelled. It was a deft move by management to seek diversification with coal and iron ore prices at their summit.
Nevertheless, the business is priced generously and iron ore and coal projects still supply the bulk of earnings. A slowdown in new project development is becoming an ever greater risk absent from today's valuation. Monadelphous remains a business to buy amid fear, not record profits. For now, we’re happy to stick with COVERAGE CEASED.