Transpacifc grounds its fleet

Transpacifc Industries has grounded its entire fleet following a fatal crash at the bottom of the South Eastern Freeway in Adelaide. It's not the first time there's been an accident at this spot and there have been calls for the government to do something about it. Heavy trucks lose braking power due to the steep entrance.

Our condolences go out to those affected by the accident and their families, and we commend management for taking decisive action to prevent further accidents. As analysts, however, we must examine the financial impact.

Investors in McAleese will be familiar with the repercussions such an accident can have for a trucking company. The cost of grounding your fleet can be large, but the bigger financial concerns are lost contracts and the wholesale changes needed to upgrade the fleet. In a business that relies on scale to earn decent returns on capital, losing revenue has a multiplied affect on the bottom line.

We've no idea what the financial ramifications of this accident will be. What we do know is that Transpacific's balance sheet remains in great shape and we're encouraged by management's decisive action to ground its fleet and help with investigations.

History may prove that the wisest decision now is to sit back and wait for more information, but in the stockmarket you get paid for accepting uncertainty. Given the 10% fall in the share price since Transpacific Industries: Result 2014 (Buy – $1.02) we're sticking with BUY.

Note: We're adding 1,000 shares to the model Income Portfolio and 1,500 to the Growth Portfolio at $0.94 per share for a total cost of $940 and $1,410, respectively.