Tuesday 03 March 2015 by Alen Golubovic Company updates

Transfield reports 1H15

Transfield offers high yielding US dollar exposure to a well know Australian name. The majority of its earnings come outside of mining from defence, social infrastructure and property, so we believe it makes for a good diversification play for investors looking for a US dollar offering outside of pure mining. 

Key Points

  • Transfield delivered a robust 1H15 performance, with the focus on cashflow and balance sheet major positives from a credit perspective
  • Operating cashflow is up 70% from 1H14, while net debt is down 11% to $569m and leverage has significantly improved with net debt to EBTIDA down from 2.9x to 2.2x
  • Management has reaffirmed its FY15 guidance for an underlying EBITDA of $260-$280m and approximately 90% of 2H15 revenue is already contracted

Summary of 1H15

  • Operating revenue is up 6% to $1.895bn
  • Underlying EBITDA is up 51% on 1H14 to $112m, with EBITDA margins up from 4.0% to 5.6%.
  • EBITDA growth was driven by growth in the defence, social and property sector and the infrastructure sector, offset by weak performances in the mining and oil and gas sectors
  • Underlying NPAT is up significantly, from $2.8m to $18.1m
  • Gearing is down from 46% to 41%
  • Management has reaffirmed its FY15 guidance for an underlying EBITDA of $260-$280m and approximately 90% of 2H15 revenue is already contracted
  • No interim dividend was declared

Commentary

Transfield’s 1H15 performance is a strong improvement on 1H14. The company has a high level of recurring revenues, exposure to growing markets, good level of work in hand and strong underlying cash conversion. The group had $38bn of contract leads at December 2014 and prospects and $17bn of identified work opportunities.

The company is targeting conservative credit metrics (25%-35% gearing and <2.0x net debt / EBITDA) with a focus on the balance sheet and cash generation. If the company is able to generate 120% EBITDA cash conversion in 2H15 (which has been implied by management guidance) then, we estimate the company’s net debt / EBITDA ratio could reduce below 2.0x by the end of the reporting year.

Please also note that the Transfield US dollar bond has the following early call provisions:

  • Between 15/5/2017 - 14/5/2018: callable @ $104.188
  • Between 15/5/2018 – 14/5/2019: callable @ $102.098
  • Between 15/5/2019 – maturity: callable @ $100.000

We expect that the likelihood of an early call increases if the bond continues to trade at a premium to call price.

Disclaimer

The contents of this document are copyright. Other than under the Copyright Act 1968 (Cth), no part of it may be reproduced or  distributed to a third party without FIIG’s prior written permission other than to the recipient’s accountants, tax advisors and lawyers for the purpose of the recipient obtaining advice prior to making any investment decision. FIIG asserts all of its intellectual property rights in relation to this document and reserves its rights to prosecute for breaches of those rights.

Certain statements contained in the information may be statements of future expectations and other forward-looking statements. These statements involve subjective judgement and analysis and may be based on third party sources and are subject to significant known and unknown uncertainties, risks and contingencies outside the control of the company which may cause actual results to vary materially from those expressed or implied by these forward looking statements. Forward-looking statements contained in the information regarding past trends or activities should not be taken as a representation that such trends or activities will continue in the future. You should not place undue reliance on forward-looking statements, which speak only as of the date of this report. Opinions expressed are present opinions only and are subject to change without further notice.

No representation or warranty is given as to the accuracy or completeness of the information contained herein. There is no obligation to update, modify or amend the information or to otherwise notify the recipient if information, opinion, projection, forward-looking statement, forecast or estimate set forth herein, changes or subsequently becomes inaccurate.

FIIG shall not have any liability, contingent or otherwise, to any user of the information or to third parties, or any responsibility whatsoever, for the correctness, quality, accuracy, timeliness, pricing, reliability, performance or completeness of the information. In no event will FIIG be liable for any special, indirect, incidental or consequential damages which may be incurred or experienced on account of the user using information even if it has been advised of the possibility of such damages.

FIIG provides general financial product advice only. As a result, this document, and any information or advice, has been provided by FIIG without taking account of your objectives, financial situation and needs. Because of this, you should, before acting on any advice from FIIG, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If this document, or any advice, relates to the acquisition, or possible acquisition, of a particular financial product, you should obtain a product disclosure statement relating to the product and consider the statement before making any decision about whether to acquire the product. Neither FIIG, nor any of its directors, authorised representatives, employees, or agents, makes any representation or warranty as to the reliability, accuracy, or completeness, of this document or any advice. Nor do they accept any liability or responsibility arising in any way (including negligence) for errors in, or omissions from, this document or advice. Any reference to credit ratings of companies, entities or financial products must only be relied upon by a ‘wholesale client’ as that term is defined in section 761G of the Corporations Act 2001 (Cth). FIIG strongly recommends that you seek independent accounting, financial, taxation, and legal advice, tailored to your specific objectives, financial situation or needs, prior to making any investment decision. FIIG does not provide tax advice and is not a registered tax agent or tax (financial) advisor, nor are any of FIIG’s staff or authorised representatives. FIIG does not make a market in the securities or products that may be referred to in this document. A copy of FIIG’s current Financial Services Guide is available at www.fiig.com.au/fsg.

An investment in notes or corporate bonds should not be compared to a bank deposit. Notes and corporate bonds have a greater risk of loss of some or all of an investor’s capital when compared to bank deposits. Past performance of any product described on any communication from FIIG is not a reliable indication of future performance. Forecasts contained in this document are predictive in character and based on assumptions such as a 2.5% p.a. assumed rate of inflation, foreign exchange rates or forward interest rate curves generally available at the time and no reliance should be placed on the accuracy of any forecast information. The actual results may differ substantially from the forecasts and are subject to change without further notice. FIIG is not licensed to provide foreign exchange hedging or deal in foreign exchange contracts services. The information in this document is strictly confidential. If you are not the intended recipient of the information contained in this document, you may not disclose or use the information in any way. No liability is accepted for any unauthorised use of the information contained in this document. FIIG is the owner of the copyright material in this document unless otherwise specified.

The FIIG research analyst certifies that any views expressed in this document accurately reflect their views about the companies and financial products referred to in this document and that their remuneration is not directly or indirectly related to the views of the research analyst. This document is not available for distribution outside Australia and New Zealand and may not be passed on to any third party without the prior written consent of FIIG. FIIG, its directors and employees and related parties may have an interest in the company and any securities issued by the company and earn fees or revenue in relation to dealing in those securities.