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Transpacific Industries Video


 

Stock Of the Day  - Transpacific Industries (Expensive)

Transpacific Industries Group Ltd (TPI) recently declared its half year results ended 31 December 2014. This came as a blow considering the statutory loss after tax attributable to ordinary equity holders of $41.7 million for the six months ended 31 December 2014 as opposed to the $158.6 million profit in the previous corresponding period. In fact, the Company reported a statutory loss after tax including $64.5 million in underlying adjustments after tax, which relate to the impairment of the Hydrocarbons business ($77.5 million), costs related to the fleet grounding that took place in August 2014 ($16.5 million) along with the improvement on the sale of the New Zealand business ($9.0 million) and $2.3 million net gain on the disposal of investments and changes in fair value of derivatives. Another disappointing point has been the statutory loss of 2.6 cents per share as opposed to the earnings per share of 10 cents in the previous corresponding period. The underlying earnings per share were reported to be 1.4 cents which is down from 2.6 cents in the previous corresponding period.


Financial Summary (Source – Company Reports)

TPI further stated that there was a 45.3% dip in the underlying net profit after tax attributable to ordinary equity holders which was of the order of $22.8 million, on the previous corresponding period. The sale of the Commercial Vehicles and New Zealand businesses in previous year along with the decline in revenues in the Industrials business at present owing to lesser oil selling prices and economic downturn led to the reported decline in profit. The Company also reported a 4.2% drop in revenue from the Australian waste management businesses which was of the order of $689.5 million. Overall, the period offered challenging environment for service providers to the mining and industrial markets. With regards to the underlying Australian waste management earnings before interest and tax, 17.1% drop on the previous corresponding year was reported at the order of $57.5 million. This was primarily affected by the performance of the Industrials business during the period. The underlying EBITDA from the Australian waste management businesses of $121.8 million was down 12.7%. The $123.4 million in net debt and $81.7 million of operating cash flow were among other updates. The Company declared an interim dividend of 0.7 cents per share as opposed to no dividend in previous corresponding period. 


Divisional Performance (Source – Company Reports)

Cleanaway division illustrated dip in EBITDA and revenues as compared to previous corresponding period in view of submissive market activity. The Commercial & Industrial revenues witnessed an improvement when compared to the second half of last year. Improvement in results is now expected on the basis of new sales and pricing programs. There was an improvement in the Post Collections business as compared to the second half of last year given the rise in total volumes and margin improvement. The Industrials division faced trouble in market with decrease in revenue and EBITDA. Lower waste oil collection volumes, revenues and EBITDA were noted for the Hydrocarbons business. There was a decline in volumes in the hazardous liquids business while the market pressures rose. It is good to wait and watch that how the restructuring programs such as the review of a fee based structure for oil collection, the integration of processing facilities and re-scaling of the business, will better the scenario for TPI.
 

 
Industrials Performance (Source – Company Reports)

TPI conveyed about focusing a lot on its multi-year strategy to attain benefits over the next one year. The key areas entail price and volume growth, improving landfill capacity and increasing internalisation rates, maximising productivity and targeting tuck-in acquisitions. More specific steps include completion of pilot programs for increasing volumes and prices in Commercial & Industrial solid waste collection markets. The Company expects that its initiatives may result in one-off costs of about $14 million in the second half.

The outlook for FY15 looks depressing with no improvement in market conditions expected by TPI for the remaining of FY15. The Company quite lately announced about completion of its purchase of the Melbourne Regional Landfill business from Boral Ltd. As per the Company, this will help TPI secure its long term position in the Melbourne market by delivering on an integral component of the overall TPI growth strategy of increasing internalisation rates for the Melbourne operations. In fact, the Company further stated that this step will steer better cash flow and higher returns. Thus, this opportunity may help the Cleanaway division to reflect increased underlying earnings in 2H. However, volatile market conditions are still expected for the Industrials division and thus underlying earnings are expected to be even below those reported in 1H. The capital expenditure is expected to be ~$170 million in FY15, which looks high.


TPI Daily Chart (Source - Thomson Reuters)

We believe that the stock is EXPENSIVE at the current price of $0.84.