Ben Temkin
29 August 2008
column
Johannesburg — MURRAY & Roberts' excellent results for the year ended June, released on Wednesday, pushed its share price up 6% on the day.
This surge was unexpected as earnings growth was about in line with the prospects in the trading update just more than a month ago. You could confidently have expected that the results had been fully discounted in the share price and that, on the publication of the results, the share price would have fallen as traders took their profits.
No doubt the trigger for the hefty demand for the shares was the prospects in the directors' report. With only a single caveat -- the continuation in current levels of fixed investment activity in the group's markets -- the directors expect diluted headline earnings per share in the 2009 financial year to grow between 30% and 40%. This is a brave prospect to publish so early in the new financial year. However, in buying Murray & Roberts shares for the Private Investor portfolio a year ago, Jean and I were expecting bottom-line earnings per share to grow an average of more than 30% over the medium to long term, say, three to 10 years.
I'm reasonably sanguine on the 10-year view relative to a comment by CE Brian Bruce on the results. Bruce says that for the first time in more than a quarter century, gross fixed capital formation has taken centre stage in defining the future economy of many developing countries, including SA.
Bruce then cites a recent investment report which concludes that for the coming decade, probably the most important theme in global investments will be the "build-out of the developing world as it closes the infrastructure gap with the developed world".
I would, as I've written before, hate to compare Murray & Roberts' performance against its listed rival companies. And, although we're not focused on its share price, it's nice to know that, with a gain of 40% on paper, on Wednesday's market close, it was once again the top performer the Private Investor portfolio.
But let me return to the monitoring process. After the trading update last month, my guesstimate for fully diluted headline earnings per share was 545c. The actual outcome was 550c. Including transaction costs, we paid R71,08 per share, which means we had an earnings yield of more than 7,7%.
Let's be conservative on the forward look and guesstimate growth of 35% to 742c in diluted headline earnings for the financial year 2009. On the share price of R71,80 we paid, our forward earnings yield is then 10,33%, our forward price:earnings ratio is 9,7 and the projected dividend yield is 3,8%.
In the financial year 2010, if profit growth is 30%, my guesstimate for diluted headline earnings is 964c. On our investment, the forward earnings yield is 13,4%, the forward price-earnings ratio is 7,5 and the projected dividend yield is approaching 5%.
On Wednesday's closing share price of R102,50, the forward price:earnings ratio for 2009 is close to 14 and for 2010 is 10,6. These ratings confirm that the market view is at least in line with mine, if not more optimistic.
Be the first to Write a Comment!
Copyright © 2008 Business Day. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com). To contact the copyright holder directly for corrections — or for permission to republish or make other authorized use of this material, click here.
AllAfrica aggregates and indexes content from over 125 African news organizations, plus more than 200 other sources, who are responsible for their own reporting and views. Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica.
