TPI Transpacific Industries
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     sway
Member
Username: sway
Post Number: 136
Registered: 12-2005
Rating: N/A
Votes: 0
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| | Monday, February 11, 2008 - 11:34 am: |  
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Has anyone been following the fortunes of TPI from a fundamentals point of view? Last year everything seemed to be healthy? Since about mid year however, it has dropped from a high of $14, paused for a few months at $11, and now looking for support at $8. I read somewhere that directors and executives were accumulating heavily. I also read that their gearing was pretty high, which seems to be a real turnoff for the market these days.
Any thoughts? What does the revered Stock Doctor have to say?
This is from Huntley's "Buy" recommendation on 18-Jan-2008
High debt levels and a rapid acquisition strategy have scared many investors from TPI resulting in a steep share price fall. This is despite the company advising the market in December that it had refinanced its $2.35bn of short-term debt with little impact on earlier FY08 profit guidance. We note the interest rate on the new funding is subject to reset every year, so there is no protection against further increases in interest rates.
Business Impact: We have lowered our recommendation trigger levels due to the increased cost of capital. The stock is for investors comfortable with a higher risk/return proposition.
Forecast Impact: --
Recommendation Impact: As we said in our last review: ‘a slowdown in global growth could lead to market PE contraction, which usually impacts growth stocks disproportionately. We would consider such a downward re-rating of TPI an opportunity to increase positions.’ This has certainly occurred and we therefore reiterate our Buy recommendation. While the lower price considerably lowers investment risk, we still note the low dividend yield and the inherent risk of a very rapid-fire acquisition strategy. Interest cover is quite low at around 2.5 times. The lower share price also impacts TPI’s ability to make acquisitions. Our forecasts require the realisation of material synergies from acquisitions. There is risk these are deferred, or less than estimated. Key management could leave resulting in the loss of important customers and a generalised loss of control. We derive comfort from the fact that during TPI’s short history as a listed company we have found management guidance to be realistic and so far acquisitions appear to have been successful. The inherent resilience of the waste management industry, TPI’s strong competitive position, and material management shareholdings continues to attract.
Cheers
Sway
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