FGE - Forge Group

[jank]

Lots wipped off this lately. Thinking of selling to come out with a little bit of profit and maybe re-enter when it hits the bottom. Might be over sold though.

 

[CanOz]

Still above the 200 MA and the major trend line. I wouldn't have stuck around this long (total benefit of hindsight!), but a good bailout might be a close below the major TL.

 

[jank]

Dropped past 4.80 probably due to the slowdown in the Chinese PMI.
Might be a nice entry point, no?

 

[oldblue]

Dropped past 4.80 probably due to the slowdown in the Chinese PMI.
Might be a nice entry point, no?

Or maybe, not.

Downtrend seems to be still in place; RSI is weak; Volumes not great.

I'd wait and watch for a bit.

 

[Intrinsic Value]

Fundamentals are still very impressive. It might well go lower but who can ever pick the exact bottom.

Medium term if you buy now I think you will do quite well.

 

[skc]

Fundamentals are still very impressive. It might well go lower but who can ever pick the exact bottom.

Medium term if you buy now I think you will do quite well.

BHP scaling back $80B worth of capex doesn't worry you?

Less work = more competition = less margin = lower profits... Difficult to forecast exact numbers but the macro headwind shouldn't be ignored.

Personally I'd sit back and wait for the carnage to unfold, and pick off the survivors 3/4 years from now. FGE is likely to be a survivor given its track record and balance sheet strength. But if the total mining capex has peaked, I think there'd be lower prices ahead.

Alternately, you can buy FGE and short a weaker stock in the same sector in search of outperformance in a sector that's trending down overall.

 

[Ves]

Less work = more competition = less margin = lower profits... Difficult to forecast exact numbers but the macro headwind shouldn't be ignored.

A few of us made this comment a few months ago too. Pretty sure it was in robusta's thread.

 

[craft]

ROE for the last 5 FY Results, 17.90, 18.58, 31.94, 33.28, 31.20

ROE for the last 5 HY Results 14.73, 13.62, 24.29, 19.02, 15.22

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?

Just updating this post with latest numbers.

I held FGE and sold late march 2011 conserned that profitability looked like it was starting to come off and industry margins were cyclically high. Premature as usual and didn't see the resurgence in march/april this year on the horizon so my thoughts can be taken with a grain of salt - but I still hold concerns that these mining service companies are overvalued on a full cycle profitability basis.


MND has a longer record (1990-2011) to get a feeling for how good the last half dozen years or so have been for the industry. 10.31% 11.65% 19.89% 18.58% 21.60% 20.19% 23.00% 25.14% 26.02% 26.44% 27.84% 13.25% 17.17% 20.73% 21.72% 36.14% 47.31% 66.77% 64.97% 60.57% 57.68% 49.20%

 

[So_Cynical]

Its a service stock and goes up and down on contract wins and general mining sentiment.

BRIC and world growth positive = Yes

BRIC & World growth Negative = No

FGE is not an exact proxy, but nothing is...its always just a punt on where the SP is at any particular time.

 

[Intrinsic Value]

BHP scaling back $80B worth of capex doesn't worry you?

Less work = more competition = less margin = lower profits... Difficult to forecast exact numbers but the macro headwind shouldn't be ignored.

Personally I'd sit back and wait for the carnage to unfold, and pick off the survivors 3/4 years from now. FGE is likely to be a survivor given its track record and balance sheet strength. But if the total mining capex has peaked, I think there'd be lower prices ahead.

Alternately, you can buy FGE and short a weaker stock in the same sector in search of outperformance in a sector that's trending down overall.

True about BHP I am working as an independent contractor for them at the moment in Singapore and they just slashed half our project team and delayed the next rollout citing falling commodity prices and euro concerns. Many people not happy with them as they got a lot of people over here and they spent substantial amounts of their own funds to relocate and then were told after only a few weeks of a one year contract that they were no longer needed.

So you could just take the view not to buy anything and wait. Regardless of what you do i would be keeping most of my money in cash because there could be some very good opportunities in the next 12 months.

 

[skc]

True about BHP I am working as an independent contractor for them at the moment in Singapore and they just slashed half our project team and delayed the next rollout citing falling commodity prices and euro concerns. Many people not happy with them as they got a lot of people over here and they spent substantial amounts of their own funds to relocate and then were told after only a few weeks of a one year contract that they were no longer needed.

So you could just take the view not to buy anything and wait. Regardless of what you do i would be keeping most of my money in cash because there could be some very good opportunities in the next 12 months.

Really they can do that? Isn't a contract a CONTRACT? And I can't believe they don't pay for relocation...

 

[Huskar]

Really they can do that? Isn't a contract a CONTRACT? And I can't believe they don't pay for relocation...

The contract of employment is actually a unique type of contract so you might say a contract is not always a contract...

The important distinction is between a contract of service and a contract for services. The former (of service) gives rise to an employer/employee relationship; the latter (for services) gives rise to a principal/independent contractor relationship.

Employment law is almost entirely concerned with the employer/employee relationship on the basis that an independent contractor is "self-employed" and can look after themselves.

There are significant benefits and rights for an employee. An independent contractor on the other hand has very few rights, for example they have no right to various forms of leave and have minimal protection from dismissal.

Employers will try to structure their workforce so that they are contractors but even if both parties agree that the contract is for services the court might still say that the relationship is one of employer/employee (for example, if you work wholly or mostly for the same employer for a certain period of time).

BHP has hired these workers as short-term contractors and so can terminate freely.

Whether or not it is legally okay still not a good look for this multinational brand.

My

 

[Intrinsic Value]

The contract of employment is actually a unique type of contract so you might say a contract is not always a contract...

The important distinction is between a contract of service and a contract for services. The former (of service) gives rise to an employer/employee relationship; the latter (for services) gives rise to a principal/independent contractor relationship.

Employment law is almost entirely concerned with the employer/employee relationship on the basis that an independent contractor is "self-employed" and can look after themselves.

There are significant benefits and rights for an employee. An independent contractor on the other hand has very few rights, for example they have no right to various forms of leave and have minimal protection from dismissal.

Employers will try to structure their workforce so that they are contractors but even if both parties agree that the contract is for services the court might still say that the relationship is one of employer/employee (for example, if you work wholly or mostly for the same employer for a certain period of time).

BHP has hired these workers as short-term contractors and so can terminate freely.

Whether or not it is legally okay still not a good look for this multinational brand.

My

What you say is basically right. I have a one month notice period on my contract which is more than some who only have two weeks.

I would have been really dirty if i was one of the people who were cut. Housing here costs a fortune so even thou we are very well paid if you get cut with only a months notice you are going to be losing a lot because air fares , leases, kids school fees etc are all paid by the contractor. On top of that it takes ages to get paid. I am owed three months at the moment as BHPs AP are very slow. Additionally i spent 40k before i even got paid.

 

[Intrinsic Value]

The contract of employment is actually a unique type of contract so you might say a contract is not always a contract...

The important distinction is between a contract of service and a contract for services. The former (of service) gives rise to an employer/employee relationship; the latter (for services) gives rise to a principal/independent contractor relationship.

Employment law is almost entirely concerned with the employer/employee relationship on the basis that an independent contractor is "self-employed" and can look after themselves.

There are significant benefits and rights for an employee. An independent contractor on the other hand has very few rights, for example they have no right to various forms of leave and have minimal protection from dismissal.

Employers will try to structure their workforce so that they are contractors but even if both parties agree that the contract is for services the court might still say that the relationship is one of employer/employee (for example, if you work wholly or mostly for the same employer for a certain period of time).

BHP has hired these workers as short-term contractors and so can terminate freely.

Whether or not it is legally okay still not a good look for this multinational brand.

My

Correct. Notice period is typically two weeks or a month and all upfront costs are borne by the contractor. Additionally you are likely to have to wait at least three months before your first pay. I spend 40k before i got any money back.

Taking BHP would be a waste of time and even worse would kill your chances of more contracts down the road.

 

[So_Cynical]

BHP scaling back $80B worth of capex doesn't worry you?

Less work = more competition = less margin = lower profits... Difficult to forecast exact numbers but the macro headwind shouldn't be ignored.

Personally I'd sit back and wait for the carnage to unfold, and pick off the survivors 3/4 years from now.

That's a fairly damming assessment "carnage to unfold" i don't believe that there will be "carnage" otherwise i wouldn't be Low cost averaging into a long term stock portfolio...so assuming the world doesn't end or even come close to it...is the current SP of Forge an opportunity?

I was trawling thru the ASX300 tonight making a short list of stocks and FGE came up as a candidate (falling/substantially lower SP) the miners and the services stocks look to be getting over sold, If China and the other BRIC country's can bounce back even a little then this period of time could very well just look like a period of irrational pessimism.
~

 

[Ves]

That's a fairly damming assessment "carnage to unfold" i don't believe that there will be "carnage" otherwise i wouldn't be Low cost averaging into a long term stock portfolio...so assuming the world doesn't end or even come close to it...is the current SP of Forge an opportunity?

I was trawling thru the ASX300 tonight making a short list of stocks and FGE came up as a candidate (falling/substantially lower SP) the miners and the services stocks look to be getting over sold, If China and the other BRIC country's can bounce back even a little then this period of time could very well just look like a period of irrational pessimism.
~

The current share price of FGE does not represent belief that "the world will come to end" (P/E is still 9.5 on trailing earnings) but the fact that the market thinks earnings growth has come to a cyclical peak. The sector has headwinds, massive competition and cost blow outs.

 

[Intrinsic Value]

I notice today FGE has announced an increase in forecast net profit of some 24 odd percent to 70m on revenue of 770m.

Slight rise in share price of the back of this announcement.

 

[Intrinsic Value]

The current share price of FGE does not represent belief that "the world will come to end" (P/E is still 9.5 on trailing earnings) but the fact that the market thinks earnings growth has come to a cyclical peak. The sector has headwinds, massive competition and cost blow outs.

I think that is a fair comment about the state of mining services companies but not all mining services companies are the same and that is why I still think FGE represents good value in the medium to long term despite macro economic concerns.

 

[Intrinsic Value]

I think that is a fair comment about the state of mining services companies but not all mining services companies are the same and that is why I still think FGE represents good value in the medium to long term despite macro economic concerns.

It seems that FGE is well out of favour at the moment. Results look good and I think the share price still has plenty of upside.

Nice increase in net profit. Plenty of cash. Healthy order book.

A bit of a spike is share price today.

Hopefully it signifies a run.

Still holding should have probably sold out at high 6s and got back in again!

 

[skc]

It seems that FGE is well out of favour at the moment. Results look good and I think the share price still has plenty of upside.

Nice increase in net profit. Plenty of cash. Healthy order book.

A bit of a spike is share price today.

Hopefully it signifies a run.

Still holding should have probably sold out at high 6s and got back in again!

The sector has gone from "Totally unloved" to "Somewhat unsure but the numbers aren't so bad". Good FY12 results appear pretty well supported thus far with the stocks delivering on expectation being rewarded quite handsomely... BKN, DOW, FGE, BOL and MIN.

The two negatives have been UGL and SAI. UGL didn't fall nearly as much as its peers in the last few months, so there were plenty of baked in expectations coming out. SAI was also trading at a pretty high multiple so it was setting up for a fall.

Still quite a few results to come yet so the question is whether to get a position now to pre-empt a result, or buy on confirmation.