Transpacific offers attractive odds

Transpacific Industries' share price has fallen 29% since it reached $1.19 in March and is now down around 10% since a recent fatal accident involving a Transpacific truck in Adelaide, which led to the grounding of the company's entire fleet.

We're unable to quantify the cost but so far the incident has had no impact on the company's long-term earnings power. We'll know for sure when the investigations are finalised, but for now we're focused on bigger challenges.

Whether Transpacific turns out to be a good investment or not hinges on chief executive Bob Boucher's ability to reclaim market share lost under former management, which was focused on the company's wobbly balance sheet.

Boucher has returned the balance sheet to pristine condition with the sale of several businesses, but it will be years before we can gauge his success. In the short term he has to deal with a slowing economy, particularly in the resources sector.

While Transpacific owns some wonderful businesses, competition is fierce and some of its revenues are highly dependent on the strength of the economy. Boucher doesn't expect any of his initiatives to pay off for at least 18 months and, combined with the recent lousy result, it's easy to see why impatient investors are selling out.

Like several other well-regarded value managers we're prepared to back Boucher. If his strategy succeeds (see Five reasons to buy Transpacific) the company could earn 8–9 cents per share in a few years' time, which would likely attract a share price of between $1.40 and $1.80. If he's unsuccessful, the company should at least be able to earn 4–5 cents per share which, assuming a price-earnings ratio of 15, should lead to a share price not much below the current price.

We like those odds and continue to recommend that you BUY, though you should expect a bumpy ride until Boucher's strategy begins to show results.