Capral FY2017 results

See my original post on Capral here.

The floor didn’t cave in and the stock price went higher. When I wrote my original post, my opinion was that the market at that time was pricing in a bad result for FY2017. Turns out, the FY2017 result was actually pretty decent.

FY2017 results were pretty similar to FY2016’s results so there isn’t anything major to highlight. It was pretty much business as usual. Some notable developments include:

  • Normalised net profit (normalised for inventory revaluations) was down 12.7%, this was mainly due to aluminium metal price rising in 2017.  Half of the sales volume is derived from sales contracts with LME aluminium pricing and there is a time lag between the spot price is when the price is charge to the customer.  As LME metal prices rose throughout 2017, Capral’s were unable to fully pass on the metal cost to the customer and therefore margin fell. However, when LME metal price falls, the opposite will happen.

  • Housing starts are slowing with multi residential market falling by 9% and detached units falling by 2%. Capral’s main market is detached housing, so this slight fall has marginally affected sales volumes. The latest HIA reports forecast slowing housing starts for NSW and Victoria in FY2018/19 with the multi residential market falling significantly more than detached housing.
  • Capral sales to the industrial sector have offset the decline in the housing market. Strong demand for truck trailers (e.g. Maxitrans), marine (e.g. Austral) and other infrastructure projects have contributed to a 4.2% increase in revenue (excl scrap revenue) in FY2017.
  • Capral flagged higher capex at the AGM in March 2017 and capex increased by 41% to $5.8 million in FY2017. Capex is expected to further increase to $10 million in FY2018. Capral is introducing more automation in its factories which will further reduce operating costs.
  • New anti-dumping cases have been launched against two of China’s largest aluminium extrusion importers into Australia. I understand that the anti-dumping commission has used a more advantageous cost formula to calculate a “fair price” for the extrusion products which should increase the dumping duties.

At the time of writing, the share price is 17 cents which imply a market capitalisation of $80.7 million.

Based on the current update, I don’t see any reasons why the dividends cannot be sustained as the payout ratio is at 50% and the company has cash of $34 million. I continue to hold this stock.

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