| Subject: Erg report 15/10/2001. |
Author:
Steve Erg..
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Date Posted: 21:31:53 11/16/01 Fri
ERG Ltd
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ASX Code: ERG
Sector: ASX Telecommunications Research
Monday, 15 October 2001
High Forecast EPS Growth
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Price: $0.66 @ 12/10/01 (0.00) 52 Week Range: $0.49 - $3.43
% Move last 3 mths: -49.6% Av. Monthly Volume: 6.0 (m)
Market Cap. ($m): 420.7 Sector Weight: 1.5%
Shareholder Benefits: No Dividends Paid: Dec
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Share Price History: - Reflecting Capital Adjustments Earnings Details: - Reflecting Capital Adjustments
Year End 98A 99A 00A 01P 02F
NPAT(m) 13.8 20.3 35.2 6.1 27.0
EPS 2.4 3.2 5.6 1.0 4.2
PER(x) 12.4 29.0 77.9 150.0 15.7
DPS 0.3 0.5 0.7 1.0 1.3
Yield% 1.1 0.5 0.2 0.7 2.0
Franking% 0 0 0 0 0
Legend: A = Actual, F = Forecast, P = Preliminary
Market Review:
ERG has posted a poor performance over the past quarter, recording a -49.6% price movement for the period, against the All Industrials Index return of -5.0%. Within ERG's industry grouping, Telecommunications, the performance was again poor, with the industry sector recording a better -4.6% return. As a matter of interest, DeepSky Webmarket Limited was the best performer within the sector over the last quarter, recording a 9.1% price rise in share price terms.
Financial Results:
ERG's adjusted Net Profit After Tax of $6.1m for the full year period to 30 June, was down 82.7% on last year's result, with $35.2m recorded for FY00. Material points within the result included a 25.1% decrease in sales to $269.8m, a 46.1% decrease to $30.0m in other revenues, a 198.5% decrease in net interest costs to an income of $6.7m, a 7.9% decrease in depreciation and amortisation cost of $17.1m and a even tax rate of 375.1%. Other important points included a fall in the EBLITDA margin, at 6.2% against last year's 16.9%. Total assets increased by 1.4% to $711.5m, with net debt to equity of 107.1% against the previous corresponding period's 63.6%. Free cash-flow was weaker at $23.5m against $54.1m in FY00. View Point:
Like the rest of the market InvestorWeb was very disappointed with ERG's most recent full year result, particularly the 2H01 component, which was very flat on account of materially, lower than anticipated margins for core automated fare collection businesses.
We do however view contract wins in Rhein Ruhr and recent European deals (in Rome, Sweden, the Netherlands and the UK) as very positive (but will not impact on short term earnings).
Despite revenue and earnings visibility being fairly low in the short term we are of the opinion that longer term ERG should be able to lift earnings strongly. We also believe that contracts wins in Europe will lift chances of winning further contracts in the region.
InvestorWeb are of the opinion that the group’s technology is leading edge and view management as shrewd operators. As a result we believe that current levels represent solid buying opportunity for long term investors.
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Key Points:
Relatively High EPS Growth at 337.5%pa
Relatively Low Forecast PER Multiple
Greatly Undervalued on Relative Price to NTA
Better than Average Debt to Equity Ratio
Relatively Strong Interest Cover
Relatively Poor Forecast Yield of 2.0% in FY02
Activities:
The ERG Group is a world leader in the development and supply of automated fare collection equipment and software systems for the transit industry and technologically advanced smart card systems and services
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InvestorWeb recommendations and advice are of a general nature and have not taken into account the investment objectives, financial situation or particular needs of individual clients. Each client should assess either personally or with the assistance of a licensed financial adviser whether the InvestorWeb recommendation or advice is appropriate to their situation before making an investment decision.
www.investorweb.com.au
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