ASX:FWD
Fleetwood Ltd
Investment Summary
The fund managers believe Fleetwood Ltd presents a compelling investment opportunity, particularly due to its strong balance sheet with $39 million in cash and no debt. In their opinion, the potential for increased earnings is significant, particularly through its Community Solutions division, specifically the Searipple Village, which they believe can see occupancy rise from 34% to 65% in FY25, potentially leading to an EBIT growth of 140%, reaching approximately $28 million. They anticipate EPS of $0.19 per share, yielding around 10% at the current share price. If occupancy approaches 100%, the potential EBIT could exceed $40 million, with a dividend yield up to 15%. Despite a market cap around $180 million and EV undervaluation, they highlight the stability provided by 'take or pay' contracts, reducing risk over the next three years. Overall, the fund managers assert that Fleetwood's attractive valuation and imminent catalysts far outweigh the risks associated with its relative illiquidity.
Commentary From The Managers
Cerutty Macro Fund
30 Sept 2024
$1.85
- Cerutty Macro Fund updates its investment thesis on Fleetwood Ltd after initial coverage in January 2024.
- Focus on the Community Solutions division, particularly the Searipple Village asset.
- Searipple was previously under-utilised and needed refurbishment, with significant earnings potential from improved occupancy rates.
- Projected occupancy rates to increase from 34% in FY24 to 65% in FY25.
- Expected earnings boost driven by higher margins, with anticipated EBIT growth from $11.5 million in FY24 to ~$28 million in FY25.
- Potential to approach 100% occupancy in FY25 and FY26, increasing earnings further.
- New regional projects present promising opportunities, with Perdaman project highlighted as a possible catalyst for stock price increase.
- At 65% occupancy, estimated EPS of around $0.19 per share in FY25 could yield ~10% dividend at current price of $1.90.
- With 100% occupancy, EBIT could exceed $40 million, yielding potential dividends of 15%.
- Fleetwood's capital return policy involves paying out 100% of NPAT as dividends and a $5 million share buyback.
- Current valuation at 8x EV/E for FY1 and 6x EV/E for FY2 underestimated.
- Majority of earnings come from tier-1 take or pay contracts with clients like Rio Tinto till FY27, providing stability.
- Identified risk is relative illiquidity, which is common for ASX stocks under $500 million market cap.
- Despite liquidity concerns, Cerutty Macro Fund believes liquidity cost is outweighed by Fleetwood's attractive valuation.
- Strong balance sheet with $39 million cash and no debt enhances investment confidence.
- Confidence in management team is noted as a strategic advantage.
- Overall, Cerutty Macro Fund sees value in holding this under-researched, under-owned stock.
Please note: The completeness, accuracy or current status of the investments referenced are not guaranteed.