FGE - Forge Group

[tinhat]

Sold out of FGE and DCG today. I've done well out of both but buying back into FGE at 4.18 in September was ill disciplined. (Same deal with DCG). Hopefully, this will be the last time I try and catch a falling knife!

 

[jank]

Still dropping like a stone. To my un trained eye either something is up or its way over sold. I wonder what the bottom will be?

 

[Ves]

Still dropping like a stone. To my un trained eye either something is up or its way over sold. I wonder what the bottom will be?

I haven't bothered looking at any of these mining services stocks lately, but my guess is that analysts are finally starting to smell the roses and are currently revising some of the ridiculous earnings estimates that they had for 2013 and 2014 for stocks in this sector.

Someone may like to check.

 

[skc]

Still dropping like a stone. To my un trained eye either something is up or its way over sold. I wonder what the bottom will be?

Wait for ASX speeding ticket. On cofirmation of no real issues there's probably a short term long trade to be had.

Buying now risks a profit downgrade like many others in the sector.

 

[RottenValue]

Continue to be a believer and have bitten away at the falling knife over the past six months - resulting in a rather large position that is starting to shake the belief .

A company with a solid track record - 30% ROE, $110M in net cash, 4% dividend and steady EPS growth is being offered at a PE of 5. I am finding it hard to turn it down.

I guess I will be either a big winner or not but I continue to struggle to see how this can be valued anything south of $6. Time will tell.

 

[skc]

Continue to be a believer and have bitten away at the falling knife over the past six months - resulting in a rather large position that is starting to shake the belief .

A company with a solid track record - 30% ROE, $110M in net cash, 4% dividend and steady EPS growth is being offered at a PE of 5. I am finding it hard to turn it down.

I guess I will be either a big winner or not but I continue to struggle to see how this can be valued anything south of $6. Time will tell.

Avoid putting yourself in a situation where your position size affects your behaviour. It's easier to hold a position with conviction against the trend, when the size is manageable. Plus there's always the unforeseeable unknowns...

The "solid track record" is a result of the external enviornment as much as their internal strengths so it may not be something that you can fall back on.

Good luck.

 

[RottenValue]

Agree. In reality, even now the large position is relative as it has only reached 5% of the portfolio so any damage will be limited. My bigger problem is that I didn't really mean this to occur as I was happy with a 2% holding as I normally reserve the bigger positions 5-15% for far better quality businesses than this one.

A nibble here, a nibble there. Need to stop watching it

 

[McLovin]

A company with a solid track record - 30% ROE, $110M in net cash, 4% dividend and steady EPS growth is being offered at a PE of 5. I am finding it hard to turn it down.

A solid track record that goes back to 2007? That doesn't really give you a good understanding of what happens to this business through the cycle. Check out some of the discussion in the FWD thread to see how well these mining services companies have done on an historical basis for the last few years.

Here's what I said last August when NPM fell from 12% to 9%

8,832/424,673 <> 12%. Net profit margin has contracted from 12% to 9%. If labour costs are rising, then why hasn't the company made some reference to that and outlined ways it is mitigating that effect (like being able to pass the cost on), or at the very least acknowledged it is occurring.

Is this expected to continue? I mean if you are sitting here this time next year and NPM has contracted a further 3 points, their going to need some serious headline growth to lift the bottom line.

That has now played out and margins are down at 6.4%. The same is happening across the industry, so I really don't see how FGE can go back to its boom time returns.

The stratospheric growth in revenue, while maintaining big margins was never going to be sustainable.

 

[tinhat]

Earnings guidance out today and the share price takes off.

The Board of Forge Group Limited (ASX: FGE) (Company) wishes to advise that the
Company anticipates net profit before tax (NPBT) for the financial year ending 30th June
2013 to be in the range of $90M to $100M. This represents an improvement on the previous corresponding period (pcp $70M) of between 28% and 43%. Revenue is expected to be in the range of $950M to $1.0B for the financial year ending 30 th June 2013. This represents an increase on the previous corresponding period (pcp $781M) of between 22% and 28%. The Board anticipates the weighting of both NPBT and Revenue to be approximately evenly
split between the first and second half of the 2013 financial year.

 

[skc]

Wait for ASX speeding ticket. On cofirmation of no real issues there's probably a short term long trade to be had.

Buying now risks a profit downgrade like many others in the sector.

That's a very solid update. share price +18%.

Chart is now right on resistance of $3.90. It might take a few cracks to leave it behind, then it'd probably meander around $4-$4.4.

 

[RottenValue]

A pleasing announcement - is it now that I say I never doubted management

I guess no speeding ticket required now.

 

[McLovin]

Good update. Very surprising actually. They're still getting work albeit they are doing it on margins under 10% instead of the old 20%+.

I don wonder how sustainable this is. These guys aren't selling burgers. My doubts remain.

 

[Intrinsic Value]

Good update. Very surprising actually. They're still getting work albeit they are doing it on margins under 10% instead of the old 20%+.

I don wonder how sustainable this is. These guys aren't selling burgers. My doubts remain.

If you compare FGE to many of the other mining services companies they are in a very strong position. A downturn in the short term could be good for FGE as marginal players are forced out or become uncompetitive leaving more work for FGE.

 

[Intrinsic Value]

Good update. Very surprising actually. They're still getting work albeit they are doing it on margins under 10% instead of the old 20%+.

I don wonder how sustainable this is. These guys aren't selling burgers. My doubts remain.

I think these reduced margins were already factored into the share price in any case.

 

[McLovin]

If you compare FGE to many of the other mining services companies they are in a very strong position. A downturn in the short term could be good for FGE as marginal players are forced out or become uncompetitive leaving more work for FGE.

Hmm...I don't know if I'd call it a downturn, more like a return to normal. I do agree, FGE does seem to be one of the better run companies in the sector.

 

[RottenValue]

On reflection, the market reacted to the FGE announcement in a very subdued way (or as subdued as a 17% daily spike can be).

Prior to the announcement, consensus EPS for 2013 was $0.65 which can now reasonably be increased to $0.77.

Prior to the announcement, SP was $3.29 and it ended the day at $3.85.

Basically the market seems to be only prepared to pay 5 times earnings at the moment for this company. Will be interesting to see if it is re-rated over the next few months - an undemanding PE of 8 would raise it back to where I see it as being fairly priced.

 

[skc]

On reflection, the market reacted to the FGE announcement in a very subdued way (or as subdued as a 17% daily spike can be).

Prior to the announcement, consensus EPS for 2013 was $0.65 which can now reasonably be increased to $0.77.

Prior to the announcement, SP was $3.29 and it ended the day at $3.85.

Basically the market seems to be only prepared to pay 5 times earnings at the moment for this company. Will be interesting to see if it is re-rated over the next few months - an undemanding PE of 8 would raise it back to where I see it as being fairly priced.

PE 5x is the going rate for smaller contractors. BLY, ASL, NWH and a few others are all around that level.

PE 8x is actually quite demanding for the market at the moment!

 

[RottenValue]

Battled its way through $4 today - interesting to see if it can continue its upwards movement.

 

[skc]

Battled its way through $4 today - interesting to see if it can continue its upwards movement.

Most mining service stocks put in a good performance today. I think we probably have a mid term bottom for the sector - until the next reporting season in Feb is my guess - as long as the overall market doesn't fall substantially (which looks unlikely).

 

[Intrinsic Value]

Most mining service stocks put in a good performance today. I think we probably have a mid term bottom for the sector - until the next reporting season in Feb is my guess - as long as the overall market doesn't fall substantially (which looks unlikely).

Another contract win for FGE and a pleasing jump in share price. Could it be headed back up to 5 dollars?