GALE Pacific Ltd (ASX:GAP) is an Australian manufacturing company focused on building products and home improvement, distributing a range of commercial and domestic applications and polymer textiles. GALE Pacific listed on the ASX in December 2000 and trades under the ticker code GAP. GALE operates in Australia, New Zealand, the USA, Middle East and China.
The share price has doubled during the past 12 months and GALE is on track to post revenue growth for the fifth consecutive year. The company’s product portfolio comprises of shadecloths, leisure products, DIY household and glass products and is typically sold toprofessionals in architecture, building and construction, agriculture, transport or the mining industry.
The company is witnessing strong demand in its key markets Australasia, Americas and Middle East and management targets the distribution of a dividend yielding nearly 5%. However, despite continuous revenue growth, earnings have been volatile and there is no guarantee that a strategic review, currently underway, will yield cost savings. Approximately 30% of GALE’s revenue is derived from overseas and is therefore subject to currency exchange fluctuations. Furthermore, with net debt at ~2x EBITDA, these borrowings may constrain the company’s ability to expand.
Following the recent price surge, it would not surprise if the stock consolidates for a while as the market awaits further announcements. Overall GALE offers profitable exposure to construction and consumer discretionary industry trends. We are attracted to the company’s revenue growth trajectory, increasing demand for its products and improved operational performance, which is expected to improve profit margins. Earnings volatility and balance sheet gearing are primary hurdles.
Witnessing growth across most of its key sectors, management may direct surplus cash towards higher dividend payments or reinvest in growth initiatives. Investors looking for capital growth income could therefore consider adding GAP to their share portfolio if the stock fits into their broader investment strategy.
|Simon Herrmann – Equity Analyst at Wise-owl
Simon is a financial advisor and analyst at Wise-owl. As an analyst Simon’s focus is the coverage of mid-capitalisation companies in the ASX300. His area of expertise includes information technology and cloud computing and his research reports are being featured on Bloomberg and Reuters.