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Market Seeing More Right With Seymour Whyte

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Established in Queensland in 1987 by civil engineers John Seymour and Garry Whyte, Seymour Whyte specialises in delivering large and complex infrastructure projects for government authorities and joint ventures.

Brisbane-based engineering and construction company Seymour Whyte Limited (SWL) listed on the market in time to catch the tailwind of the infrastructure boom, in May 2010. Quickly and seemingly easily the stock doubled its issue price of $1.00, and moved to $2.68 in January 2011.

But the boom on which Seymour Whyte picked up was mainly the civil infrastructure market, driven by federal and state government infrastructure spending – not so much the resources infrastructure work driven by the mining boom, although the company does some of this work.

The company took a share-price hit along with the rest of the resources services suppliers in 2012, as the chill winds of a Chinese economic slowdown blew through the iron ore price and into project deferrals by miners. But in Seymour Whyte’s, the major culprit was the incoming Queensland government led by Campbell Newman, which cancelled projects begun by its predecessor, and slashed the number of tenders it had out, as it sought to rein in the state’s Budget.

Seymour Whyte reported a 28% fall in net profit for the financial year 2011-12, and a disappointed market took its price back well below the float price – hitting a low of 72 cents in October 2012.

Since that point however, the stock has mounted an impressive recovery, to be trading at $1.895.

Established in Queensland in 1987 by civil engineers John Seymour and Garry Whyte Seymour Whyte specialises in delivering large and complex infrastructure projects for government authorities and joint ventures. The Transport division builds roads, bridges, railways, marine installations and airports. The Utilities division has delivered a wide range of projects, including power stations, processing plants, substations, renewable energy projects, bulk water catchments, irrigation infrastructure, pipelines, site remediations and all associated civil works. The Resources division (Seymour Whyte won its first resources contract in 2004) mainly does early-works infrastructure, bulk earthworks, concrete structures, access roads, civil works, material handling structures and maintenance.

Major jobs in the company’s track record include the $1.9 billion Ipswich Motorway upgrade and the $270 million Port of Brisbane Motorway upgrade for the Queensland Department of Transport and Main Roads, the $310 million Banora Point Upgrade for the New South Wales Government Roads and Traffic Authority (2009–2012), the $370 million Go-Between Bridge for Brisbane City Council (2007–2010) and the $120 million Inner Harbour Expansion for the Port of Townsville (2011–2013). All up, Seymour Whyte has been involved in more than $5 billion worth of projects.

For the financial year 2013, revenue slipped by 8% to $282.4 million, while net profit rose 4.7% to $9.3 million (including a $1.4 million R&D tax credit). The final dividend of 6.25 cents a share, fully franked, took the full-year dividend to 8 cents, up from 6 cents in FY12. Total new project wins amounted to close to $250 million.

Then, for the December 2013 half-year, revenue rose by 15%, to $151 million, operating earnings by 55%, to $8.2 million, and interim net profit by 44%, to $4.9 million.

An interim fully franked dividend of 2.5 cents a share was paid, up from 1.75 cents a year earlier, and cash on the balance sheet increased by 12%, to $53.6 million. $150 million of contract wins in the half pushed the forward order book to $224 million. Return on assets was 15.3% and return on equity came in at a stellar 30.2%.

This year, Seymour Whyte will start to benefit from the February acquisition, for $41.2 million, of Perth-based micro-tunnelling specialist Rob Carr, which took the company into the Western Australian market. Namesake founder Rob Carr stayed to head the business, reporting to Seymour Whyte managing director David McAdam.

Since the acquisition, the combined group has won more than $60 million in projects ($32 million coming from Rob Carr), increasing the group’s work in hand to about $200 million – equivalent to about 80% of FY13 revenue. Recent contract wins include micro-tunnelling and pipeline work for Queensland Urban Utilities and Brisbane City Council; Western Australian Water Corporation and other Western Australia clients; Northern Territory Power and Water Authority; and an existing system upgrade at Alphington in Melbourne. Transport sector wins include an upgrade of the Warrego Highway at Gatton and preferred status position on a civil project for Sydney Airport Corporation.

Seymour Whyte says its tender pipeline – those specifically targeted and contestable in its operating sectors for the next 12 months – stands at $1.98 billion, with “total opportunities identified” of $7.52 billion, spread 61% in Queensland and 39% in New South Wales. The transport sector pipeline remains strong at $8 billion worth of contestable work.

For the upcoming FY14 full-year result, Seymour Whyte has reaffirmed profit guidance of between $10 million and $11 million. Analysts’ consensus forecasts expect earnings per share (EPS) to come in at about 13.9 cents, which places SWL on a prospective price/earnings (P/E) ratio of 13.6 times earnings, and on an expected FY14 fully franked yield of 3.85%.

Seymour Whyte is a good way to play increased infrastructure spending, as it generates most of its income from civil and utilities services contracts: it is particularly well-leveraged to federal government infrastructure spending. Levels around $1.90 look to be a cheap entry level for this stock: the analysts’ consensus target price for the stock is $2.05, and SWL should reward patient holding even more.

View More Articles By James Dunn

James was founding editor of Shares magazine, and oversaw one of the most successful magazine launches in Australia. He has also written for BRW, Personal Investor, The Age and Management Today, and was subsequently personal investment editor at The Australian and editor of financial website, investorweb.com.au



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