PCG - PCH Group

[michael_selway]

Increased holding today - setting up for above $1 soon.

Fundamentals still fantastic (still trading well below PE 10x on forecast 06 earnings)

TJ

its got low PEs, although forecast growth is limited 10%pa next few yrs it appears, divi also low

Earnings and Dividends Forecast (cents per share)
2005 2006 2007 2008
EPS 6.3 10.1 11.1 12.5
DPS 1.2 1.5 2.0 3.0

EPS(c) PE Growth
Year Ending 30-06-06 10.1 9.2 60.3%
Year Ending 30-06-07 11.1 8.4 9.9%

I think i read soemwhere, thats theres a risk inherent with thsi company, thus the low PE atm, forgot what it was now

thx

MS

 

[TjamesX]

its got low PEs, although forecast growth is limited 10%pa next few yrs it appears, divi also low

Earnings and Dividends Forecast (cents per share)
2005 2006 2007 2008
EPS 6.3 10.1 11.1 12.5
DPS 1.2 1.5 2.0 3.0

EPS(c) PE Growth
Year Ending 30-06-06 10.1 9.2 60.3%
Year Ending 30-06-07 11.1 8.4 9.9%

I think i read soemwhere, thats theres a risk inherent with thsi company, thus the low PE atm, forgot what it was now

thx

MS

Depends what you think forecast growth will be??

If you look at their EPS growth over the last five years, it has been very strong. Obviously some analysts expect it to flatten. But from the forecasts you've put up - to me it looks like they haven't really looked at what is going on.

They forecast 10.1c EPS for 06. The first half result has already come in at 7.1c. So they think 3.1c for the second half? I realise there are some hiring contracts coming to an end in 06 that may affect this.... but, that seems very conservative. When in doubt, go behind the numbers and look at how the business makes money....

PCG lends scaffolding mainly to local and overseas resource companies - so their potential growth is very much linked to expansion and exploration projects.

Will they be able to continue writing contracts?

Depends if you think resources companies will stop expanding and exploring....

TJ

 

[TjamesX]

Added again today at 86c

PCH released broker update that says 2nd half won't be as good as first... we knew that. I'm still expecting 4c eps for the second half.

So at 86c its trading at 7.5x forecast 06 earnings. Should they be trading at such a low PE? have a look at their earnings growth for the last 5 years and make up your own mind???

Market is a funny bugger sometimes - the stock opened at 90c and then traded down to 80c on a volume of about $25k, so thats the price it has to start moving from again - and its been steady as she goes up since.

Do your own research

TJ

 

[michael_selway]

Added again today at 86c

PCH released broker update that says 2nd half won't be as good as first... we knew that. I'm still expecting 4c eps for the second half.

So at 86c its trading at 7.5x forecast 06 earnings. Should they be trading at such a low PE? have a look at their earnings growth for the last 5 years and make up your own mind???

Market is a funny bugger sometimes - the stock opened at 90c and then traded down to 80c on a volume of about $25k, so thats the price it has to start moving from again - and its been steady as she goes up since.

Do your own research

TJ

Hi dude, not EPS growth in the last 5 yrs but EPS growth forecast in the next few yrs, each is only 10% pa atm (not updated)

Earnings and Dividends Forecast (cents per share)
2005 2006 2007 2008
EPS 6.3 10.1 11.1 12.5
DPS 1.2 1.5 2.0 3.0

http://www1.pchgroup.com.au/uploads/pdfs/Broker Update - May 2006 W.pdf

See the thing is, they say "2nd half won't be as good as first", so probabality wise, its a safe bet that the following half will be not be as good as well? It doesnt mean it wont be, in fact it could do much better and suprise the market. However the key is probablity (risk)

thx

MS

 

[TjamesX]

Hi dude, not EPS growth in the last 5 yrs but EPS growth forecast in the next few yrs, each is only 10% pa atm (not updated)

Personally I would think a company trading at F06 PE of 7.5x and expected to grow at 10% pa would represent tremendous value. But then again some people prefer to own stocks with no earnings and no PE and all blue sky potential

As far as looking at historic EPS Vs Forecast. I look into the past as a guide to the future. I like to look at what HAS happened - it gives a guide into what the management have been able to achieve in reality. Most stocks have lower historic growth in EPS than forecast growth because management like to say "hey we've got some great things coming up in the next few years - growth will be fantastic". PCG is one of the few that is the other way around, and I like the way they have been managed.

Earnings and Dividends Forecast (cents per share)
2005 2006 2007 2008
EPS 6.3 10.1 11.1 12.5
DPS 1.2 1.5 2.0 3.0

http://www1.pchgroup.com.au/uploads/pdfs/Broker Update - May 2006 W.pdf

See the thing is, they say "2nd half won't be as good as first", so probabality wise, its a safe bet that the following half will be not be as good as well? It doesnt mean it wont be, in fact it could do much better and suprise the market. However the key is probablity (risk)

thx

MS

The reason earnings is to be lower is due to contracts ending. The question is will they be able to re-hire that equipment? That will give you a guide as to what will happen after. As a reference look at 2nd half 04 EPS - this was lower than 1st half 04.

As buffet likes to say - invest all your resources in a few and watch like a hawk.... this is one of those stocks for me

Cheers,
TJ

 

[TjamesX]

For those interested, another of my updates...

Added to holding again yesterday and today straight after announcement.

The general Jist of the announcment was;

- unsure why people were so pessemistic over last broker update, they are still on track for 10c EPS (after abnormals) for this year, and growth going forward looks good.

- In Aus they have signed a new contact with RIO in the Pilbara, and a refinary contact in Vic

- International looks increasingly good, MOU's in Asia for sale of formwork, big potential in the middle east

Thats about it

 

[lewstherin]

I've been in at 82c for a while and was becoming concerned that some big speculators were stuffing around with the share price because it just seemed wrong that the share should be so cheap.

PCH has got one hand in the oil & mining contracting industry - and that side is on fire at the moment - and another hand in the Aus property industry. NSW may not be doing so well for property, but I can personally vouch that WA is exploding at the moment, so it will easily carry a good result this quarter imo.

I'll be holding for a return to the 95c+ this company deserves...

 

[michael_selway]

I've been in at 82c for a while and was becoming concerned that some big speculators were stuffing around with the share price because it just seemed wrong that the share should be so cheap.

PCH has got one hand in the oil & mining contracting industry - and that side is on fire at the moment - and another hand in the Aus property industry. NSW may not be doing so well for property, but I can personally vouch that WA is exploding at the moment, so it will easily carry a good result this quarter imo.

I'll be holding for a return to the 95c+ this company deserves...

**** they lowered forecasts!

Earnings and Dividends Forecast (cents per share)
2005 2006 2007 2008
EPS 6.3 10.1 10.2 11.5
DPS 1.2 1.5 2.0 2.8

Anyway i think i read soemwhere that in WA competition is too big for PCG, scaffolding business is really risky?

thx

MS

 

[TjamesX]

Michael - PCG didn't lower forecasts, brokers did

Brokers forecasts change all the time, they're manic depressives like the rest of the market!

This is what a broker had for forecast EPS on PCG only 5 months ago. At the time they had a target price of 85c....

2005 2006 2007 2008
EPS 6.70 7.27 8.10 8.92
DPS 1.25 1.50 1.50 2.00

Then PCG released the first half results which basically almost reached the full year 06 forecast in the first half, so all the brokers increased their forecasts (partly due to on offs)

Then an update reminded brokers that the second half would not be as good (which wasn't new news), this broker then lowered their forecasts only last week to;

2005 2006 2007 2008
EPS 6.86 10.8 9.86 11.2
DPS 1.25 1.50 1.50 2.00

With a target price of 94c

IMHO the markets response was a complete overreaction, so I have been adding again. I am happy to be wrong.... time will tell. To me their release today confirmed what I have been thinking longer term - they have a credible growth story but half year earnings will fluctuate

As far as competition in WA market goes, over 50% of their revenues are generated overseas.

People like to lump them in with housing and commercial construction market which is just plain wrong. PCG generated over 75% of revenues from Mining/resource, oil & gas industries and most of this is overseas revenue.


Brokers cannot predict everything, but neither can I.....


(PS good to see the market reaction to the release today - and on good volume)

 

[TjamesX]

Added again today @ 80c

All my cash that was sitting on the sidelines is starting to dry up

I think I have enough now - lets see where it goes......

 

[michael_selway]

As buffet likes to say - invest all your resources in a few and watch like a hawk.... this is one of those stocks for me

Cheers,
TJ

Its got a low PE yes so may rebound

But compared to WOR which business is more dynamic for the medium term u think?

WorleyParsons Limited (WOR) provides professional services to the energy, resource and complex process industries. It offers a broad scope of services, from feasibility studies to design and project services. WOR operates across 5 key sectors: Oil & Gas; Refining, Petrochemicals & Chemicals; Minerals & Metals; Power & Water; and Industrial & Infrastructure. Operations span 14 countries in the Asia Pacific, Middle East and United States and its client base includes Alcoa, BP, Shell, Origin, and BHP Billiton.

PCH Group Limited is a contracting services firm, which operates in the hire and sale of scaffolding to the construction, resources and oil & gas industries. The company has operations in Australia, Kazakhstan, The United Arab Emirates, Thailand, Singapore and the Caspian region. The Company has positioned itself in a number of markets which are expected to remain buoyant for at least the next several years. Whilst the Companys existing operational base stands to benefit from these conditions, several expansionary moves are also underway to broaden and diversify the Companys revenue base, both through the introduction of complimentary hire products and through geographical expansion.

thx

MS

 

[TjamesX]

As the PE ratio is the only easy measure of relative value - I think it is very important.

Worley's business is indeed more dynamic than PCG's and its earnings could be considered 'better' as they do not require the equivalent capex to expand the business, they just hire more people. But with WOR currently trading at 30-40x F06 earnings - you are really paying a hefty premium for future earnings.... and what if they don't achieve this????

PCG on the other hand has undynamic earnings that require capex to grow. But at 7.5x F06 earnings the market has pretty much factored in no growth to those earnings or even a pull back in the years to come. My personal view is I see no reason why they can't achieve very good growth as they are leveraged to growth industries and not just in Australia. They have proven they can grow - the market has made a bet against them...... we'll see how they go...... we already know 06 results will be well above 05 because of the first half result, the real test will be 07.

Cheers,
TJ

 

[michael_selway]

As the PE ratio is the only easy measure of relative value - I think it is very important.

Worley's business is indeed more dynamic than PCG's and its earnings could be considered 'better' as they do not require the equivalent capex to expand the business, they just hire more people. But with WOR currently trading at 30-40x F06 earnings - you are really paying a hefty premium for future earnings.... and what if they don't achieve this????

PCG on the other hand has undynamic earnings that require capex to grow. But at 7.5x F06 earnings the market has pretty much factored in no growth to those earnings or even a pull back in the years to come. My personal view is I see no reason why they can't achieve very good growth as they are leveraged to growth industries and not just in Australia. They have proven they can grow - the market has made a bet against them...... we'll see how they go...... we already know 06 results will be well above 05 because of the first half result, the real test will be 07.

Cheers,
TJ

They lowered forecasts again

Earnings and Dividends Forecast (cents per share)
2005 2006 2007 2008
EPS 6.3 9.1 9.4 10.8
DPS 1.2 1.9 2.4 3.0

Was before

2005 2006 2007 2008
EPS 6.86 10.8 9.86 11.2
DPS 1.25 1.50 1.50 2.00

thx

MS

 

[TjamesX]

They lowered forecasts again

Earnings and Dividends Forecast (cents per share)
2005 2006 2007 2008
EPS 6.3 9.1 9.4 10.8
DPS 1.2 1.9 2.4 3.0

Was before

2005 2006 2007 2008
EPS 6.86 10.8 9.86 11.2
DPS 1.25 1.50 1.50 2.00

thx

MS

Why have they lowered 2005 numbers when they have already been? Which broker is this and what target price do they have? The dividend was 1.25c in 2005 not 1.2 - this is fact.....?????

The company has indicated 10c EPS for this year as most likely - so until they change their view - I will believe them....

Cheers,
TJ

 

[TjamesX]

Technically could be forming a medium to long term bottom (IMO)...

Fundamentally you probably know where I stand on this one. See what they report in a couple of months

Been under a lot of selling pressure becuase a fund was exiting and this led to tax loss selling. I believe either CBA or HHL have totally exited or close to it - have to wait for full year report on this.

Not for the faint hearted, they have operations in the middle east

TJ

 

[TjamesX]

PCG just announced it has been awarded contract for providing scaffolding for the 5th train NWS LNG project.

Work commences shortly and to run until May 2008

Now wait for the broker upgrades

TJ

 

[michael_selway]

PCG just announced it has been awarded contract for providing scaffolding for the 5th train NWS LNG project.

Work commences shortly and to run until May 2008

Now wait for the broker upgrades

TJ

what do u think of results?

Price dropped a bit

thx

MS

 

[Halba]

hi michael

market was disappointed with the outlook. results were OK, cash flow positive. Oversold before and after result i think. p/e is about 6

flat earnings next year, but growth in fy08,09

 

[3 veiws of a secret]

I bought this share ,when it was dumped recently.
But all this "pork-chop talk" about the scaffold side of the business, (for me) is a dull business to be in.No cream or premium in this business unless they get refinery work, the rest is wrapped up but a competive market.As for doubles ,swivels ,joiners ,and putlock clips in the Middle east ,I swear they prefer bamboo. @ 63 cents it seems a favourable entry point compared to 85 cents!

 

[TjamesX]

what do u think of results?

Price dropped a bit

thx

MS

The result was weaker than I had anticipated and i had to reduce my exposure to this stock because the good news for PCG will be too far away for the market to care. Learnt a good lesson. I was looking for them to be more bullish on 07 results but the delay in Kashagan development has hurt them.

From a value perspective I think they are still undervalued - I would put fair value around 80-90c with potential a lot higher.

Management seem to be setting up for longer term growth and are trying to diversify earnings amongst different markets. Their focus does seem to be very good for the company in the long term - but may have hurt the short term share price a bit (with large expansion costs).

The funds played the stock - I reckon they knew the reaction would be harsh when the market realised 07 results would be lower. I would look for funds to start building positions for PCG next growth stage (08+).

In the end I got burnt a bit playing long term fundamentals and waiting for the price to recover in the short/medium term, but I don't think this will happen till after half year results reported next year - I will put the rest of the stocks in the bottom draw where they belong.

Realistically fundamentals haven't changed;

- Solid Business
- Good Management
- Good Profits
- Potential for Growth

TJ