Tempo cleans up

Earnings for the first quarter of fiscal 1999 were ahead of last year with the medium term outlook remaining positive. Tempo has now grown to employ over 10,700 staff and is of a size that allows it to tender for large, integrated contracts where only a few companies are capable of handling the complex requirements.

Cleans up in other areas

In recent weeks two smaller contracts have also been won, the first of which is a five year arrangement to provide and manage the baggage trolley and security locker services at the International Airport for the Sydney Airport Corporation Limited. This is in addition to the cleaning services that are already provided by Tempo at the airport and will generate about $2.5m in revenue per annum.

The second is a $50m multi-service contract at The Alfred Hospital in Melbourne. It will run over four years with a one year option and covers the areas of catering, cleaning, couriers, security, grounds and garden maintenance, ward support services, warehousing and distribution. Clearly, this is a truly multi-service contract and demonstrates the real depth of Tempo's business and just how flexible the group has become.

Contracts must be profitable

The successful outcome of the re-negotiation with the NSW government removes a great deal of the risk in investing in Tempo. Nevertheless, one shouldn't forget the early problems - they were temporarily very lucrative contracts but turned sour due to redundancy issues and higher than expected workers compensation claims.

Having said this, it's fair to assume that these teething problems must have been resolved as Tempo now controls a larger slice of the cake than when the problems raised their head, so we can presume the government at least believes they're out of the way. It must always be remembered though that as with any company, generating the revenue is often easier than making a profit.

Judging by the number of contract wins recently, management has its eye on growth and we don't expect this trend to stop. Even after the re-purchase of 2.2m shares, as of June 30 the company still had a net cash position of $8.2m, leaving the balance sheet with plenty in reserve.

Although trying to project earnings growth can be difficult with such companies, we're paid to stick our necks out so we'll stay with our 15-20% EPS growth projection for the current year, which should push earnings to around 15 cents per share. Even at these higher prices Tempo is still worth considering as a LONG TERM BUY.