FGE - Forge Group

[robusta]

FGE to report on Tuesday and should be extremely interesting. FGE for the half year were sitting on a nice pile of cash ~ $69,000,000 up from ~ $39,000,000 the pcp, upgraded guidence for the half year is for NPAT of $25m-$27m.

FGE has been very disciplined in the search for new aquisitions and up until this point and has not found a suitable candidate.

The question I want answered is will a larger dividend pay out ratio signal the growth of FGE is slowing down or will it signal CLO building a war chest to take over FGE?

* CLO has 33.58% of FGE and would thus benefit from a larger dividend pay out ratio or special dividend.
* Mr Neil Siford the CFO of CLO has just been appointed to the board of FGE as a non-executive director.

I will be reading the annual report with interest Tuesday night.

 

[notting]

How did the loss of the RIO contract effect these guys books?

 

[robusta]

How did the loss of the RIO contract effect these guys books?

Did not know they even had a RIO contract. FGE however keep on announcing contract wins and increase earnings every year, so far....

 

[robusta]

How did the loss of the RIO contract effect these guys books?

Sorry my mistake is this the one?

http://www.forgegroup.com.au/announcements/41z7psjdhhynmt.pdf

I was not aware they lost this job and can not find any information on it.

 

[notting]

Sorry my mistake is this the one?

http://www.forgegroup.com.au/announcements/41z7psjdhhynmt.pdf

I was not aware they lost this job and can not find any information on it.

I was under the impression there were a few. Perhaps it was not as significant as it might sound for FGE. I'm sure Roger will know.

 

[robusta]

I was under the impression there were a few. Perhaps it was not as significant as it might sound for FGE. I'm sure Roger will know.

Maybe, but I am also fairly sure the market should know, they have to continuously disclose anything of a material nature.

I am more interested at the moment in what they are going to do with the ~$1.00/share cash they are sitting on.

Also I am interested in seeing FGE win some larger contracts and also some JV with CLO, that was the main reason for giving 30% of the company away at a massive discount afterall.

 

[notting]

Don't worry. It's disclosed.
I don't know alot about it. That's why I was asking.
It was just something I heard that made my ears prick up a little while ago.
It's probably still a belter.

 

[fanger]

FGE to report on Tuesday and should be extremely interesting. FGE for the half year were sitting on a nice pile of cash ~ $69,000,000 up from ~ $39,000,000 the pcp, upgraded guidence for the half year is for NPAT of $25m-$27m.

FGE has been very disciplined in the search for new aquisitions and up until this point and has not found a suitable candidate.

The question I want answered is will a larger dividend pay out ratio signal the growth of FGE is slowing down or will it signal CLO building a war chest to take over FGE?

* CLO has 33.58% of FGE and would thus benefit from a larger dividend pay out ratio or special dividend.
* Mr Neil Siford the CFO of CLO has just been appointed to the board of FGE as a non-executive director.

I will be reading the annual report with interest Tuesday night.

We all know forge has been a good company but what is it worth? Ever since the a share price hit the $7 mark its been in slow decline.

 

[VSntchr]

We all know forge has been a good company but what is it worth? Ever since the a share price hit the $7 mark its been in slow decline.

I think its worth around $7 FWIW.

I hadn't heard anything about losing a contract...don't know where that has come from? Any more info on that?

 

[craft]

I think its worth around $7 FWIW.

What is the basis for concluding it's worth $7?

 

[VSntchr]

What is the basis for concluding it's worth $7?

A (so far) consistent ROE of 30%, pay-out ratio increasing in coming years 25% currently adopted and a conservative required return.

 

[craft]

A (so far) consistent ROE of 30%, pay-out ratio increasing in coming years 25% currently adopted and a conservative required return.

ROE for the last 4 FY Results, 17.90, 18.58, 31.94, 33.28

ROE for the last 4 HY Results 14.73, 13.62, 24.29, 19.02

Last half yearly has already shown a decrease in ROE and current forecasts show a continuation. Do you think 30% is a conservative enough estimate for an entire cycle or are you forecasting and playing earnings momentum?

If you are using the formula that I think you are then you are implying a growth rate of 22.5% Does that sound consistent with the overall picture and growth in mining infrastructure spend or are you forecasting and playing FGE gaining market share?

Do you know how far into the future these assumptions are implied to last by the valuation formula you are using? Do they match your assumptions for the business?

 

[skc]

Very crafty comments.

Few 'value investors' understands that the underlying premise of their valuation technique implies perpetual growth. I noted a few months back that FGE's growth is tapering at best. And a simple 10-12x PE puts current price as fair and not cheap. Although FGE is a small enough fish in a large industry and it isn't inconceivable that they can continue the growth, but those who think they are buying with a high margin of safety is giving management too much benefit of the doubt imo. It is dangerous to do this with engineering companies in particular - few go through their lifecycle without major blowups once in a while.

Look around the forum long enough and you will the same mistake being made all over the place... JBH was a great examples.

$25-27m BEFORE tax = $17.5 to $19m AFTER tax. H1 NPAT $21m AFTER tax. A pretty significant half-on-half fall!

Revenue was $204m in the first half, and only $200m in the update. Corresponding figures from last year was $112m and $135m. So half-on-half top line growth was 20%, 51%, -2%...

 

[robusta]

We all know forge has been a good company but what is it worth? Ever since the a share price hit the $7 mark its been in slow decline.

So has the rest of the market - some days not as slow a decline as others.

ROE for the last 4 FY Results, 17.90, 18.58, 31.94, 33.28

ROE for the last 4 HY Results 14.73, 13.62, 24.29, 19.02

A lot of fluctuation there craft, maybe I am slow but hard to spot a pattern yet IMO.

Last half yearly has already shown a decrease in ROE and current forecasts show a continuation. Do you think 30% is a conservative enough estimate for an entire cycle or are you forecasting and playing earnings momentum?

For my valuation I have been using a ROE of 25% - just to hopefuly err on the conservative side.

If you are using the formula that I think you are then you are implying a growth rate of 22.5% Does that sound consistent with the overall picture and growth in mining infrastructure spend or are you forecasting and playing FGE gaining market share?

A growth rate somewhere near ROE does not sound too unreasonable to me.

Do you know how far into the future these assumptions are implied to last by the valuation formula you are using? Do they match your assumptions for the business?

Hard to predict the future IMO, it seems even economists and analyst can get it wrong sometimes , but a business with; good margins, solid cash flow, low debt, decent ROE and with lots of work in hand may just do OK through the business cycle. The question I am constanly asking myself is, is FGE that business? Tomorrow night may give me some answers.

 

[adds4]

Sorry my mistake is this the one?

http://www.forgegroup.com.au/announcements/41z7psjdhhynmt.pdf

I was not aware they lost this job and can not find any information on it.

I dont think it was this contract. Just some minor contract from what i can gather. Didnt effect them getting the bigger contract. In business some times you cant do every job

 

[notting]

Scary what can happen when you ask a little question
There does seem to be a fair bit of work around over there in WA.

What I heard was that RIO had opted to build their own shacks for workers rather than pay Forge who where perhaps getting a little expensive.
It was a comment from some analyst on TV, I think!

Not inside information yet to be announced!!!

I thought you guys following it closely would be all over it if it was substantial.
Seems substance is lacking.

 

[McLovin]

Very crafty comments.

Few 'value investors' understands that the underlying premise of their valuation technique implies perpetual growth.

And then they dismiss DCF as trying to forecast too far into the future.

 

[adds4]

Scary what can happen when you ask a little question
There does seem to be a fair bit of work around over there in WA.

What I heard was that RIO had opted to build their own shacks for workers rather than pay Forge who where perhaps getting a little expensive.
It was a comment from some analyst on TV, I think!

Not inside information yet to be announced!!!

I thought you guys following it closely would be all over it if it was substantial.
Seems substance is lacking.

Just wondering, with what building licence are rio going to use?, which trades, managers, what tools etc. You cant sign a contract and rip it up because you feel it is too expensive, that would be breach of contract. Nothing wrong we being expensive, thats how you make profit in the building industry. Maybe next time rio may not use forge, thats the only outcome i can think of

 

[skc]

And then they dismiss DCF as trying to forecast too far into the future.

But their ideal holding timeframe is Forever.

 

[notting]

Just wondering, with what building licence are rio going to use?, which trades, managers, what tools etc.

Yes, I found it rather odd sounding too. Hence the question.