Armstrong announced a strong set of Q2 results where 2Q2010 net profit soars 125.9% to $7.1m. The first half net profit of $14.168m already exceeded the 2009 full year net profit of $14.1m! This was achieved on increased revenue and improved margins and the management has for the first time recommended an interim dividends of 2 cents per share! Assuming a full year dividend of 4 cents per share and based on today’s closing price of 41.5 cents, that will translate into a yield of 9.6%!
The analysts are bullish on this counter and are summarised as follows based on 41.5c closing price:
31 Dec 2010F
|
Kim Eng
|
CIMB
|
DMG
|
1H 2010 x 2
|
Sales ($m)
|
213.6
|
231.4
|
215.7
|
222.4
|
Net Profit ($m)
|
24.6
|
26.6
|
23.1
|
28.3
|
EPS (S cents)
|
4.9
|
5.2
|
4.62
|
5.66
|
PER
|
8.5x
|
8.0x
|
9.0x
|
7.3x
|
EV/EBITDA
|
7.5x
|
5.1x
|
5.6x
|
5.0x
|
Target price
|
$0.57
|
$0.56
|
$0.49
| |
Date of report
|
21 Jun 10
|
18 Jun 10
|
18 May 10
|
(Source: respective research reports adjusted for current share price).
Fair value
The high yield of 9.6% will provide support to the current share price as it is much higher than the deposits as well as some REITs!
PE – Assuming a fair value range of 8-10x PE, the fair value will range between $0.45 to $0.57.
M&A – Private Equity firms are acquiring or privatising listed companies at around 7x EV/EBITDA. Assuming a similar benchmark for Armstrong, the potential ‘buyout’ price will be around $0.58.
Chartwise
Chart-wise, the charts doesn’t look pretty in the near term (with down side bias) but is likely to trade sideways between 40c (Support) and 44c (Resistance) based on today's results and dividend announcement. From a longer term perspective, the company does look attractive from a fundamental perspective.
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