Growth Focus: Fleetwood Corporation Limited (FWD)

by Patrick Taylor



Date of Data Capture: 7/11/2019

Name: FLEETWOOD CORPORATION LTD (FWD)

Classification: Homebuilding & Construction

Current Price: $2.25

Market Capitalisation: $213 M

Forecast EBITDA Growth: 20.06%

Yield Estimate: 2.28%

Consensus Price Target: $2.54

# Covering Analysts: 3

Discount at Current Price: 12.89%

Price Target Trend (3-Month): Flat -1.55%

Signal Timeframe: Quarterly-Monthly-Weekly

Trend Bias: Up-Down / Long-Medium

Indicators:
Short-term: Positive-Neutral
Medium-term: Positive-Neutral
Long-term: Positive

Recommendation: Buy

Focus: Capital Growth

Set up Notes:
• Emerging from a two-year consolidation, this modular accommodation specialist has been showing fresh price strength on good overall performance and is backed by strong forecasts.
• Softer sales took income lower in 2018, and while currently negative this is set to turn back positive in 2020 and remain strong out to 2022, supported by broad gains across sales, margins and earnings, with yield set to improve also.
• Pricing shows a downtrend reflecting the softer performance since 2017, and importantly we see the linear downtrend breaking 2 months ago and then rallying through overhead resistance - we see momentum building across all timeframes.
Support ($): 2.00, 1.75 & 1.50.
Resistance ($): 2.50, 3.00 & 4.00.


Growth Focus: FLEETWOOD CORPORATION LIMITED (FWD)

The primary focus is capital gain - stocks are selected from the ASX Top 500 All Ordinaries Index.

There is often good value in stocks coming out of consolidation, when there is already some blood on the floor and the stock is making a recovery out of a support base. We think we may have that here with Fleetwood Corporation, as the specialist homebuilder breaks out of a long-running downtrend, finds fresh strength on good forecasting and looks ready to move higher all over again.

This is a well-established company, having been listed on the ASX since 1992, and has grown to become a strong player in the niche Modular Accommodation & Construction sector. Also providing more general accommodation solutions and village management services, the company-owned brands include Fleetwood Australia, Modular Building Systems, Searipple, Osprey Village, Camec, NRV and NRC.
Roughly two-thirds of all income stems from its Modular Accommodation business, followed by Parts and Services, and then Village Operations comes in last, but is also seeing the strongest growth.

Fleetwood has been active on the acquisition front, with MBS and NRV being added to the portfolio in the last 12 months, and funding was secured through a mix of a capital raise and asset sales, with further divestment of non-core assets yet to come. The purchase of MBS reflects a key strategy point, as the company looks to secure its leadership status in the modular accommodation space, seen to be a sector bound for expansion and future growth by servicing an improving mining sector.

Performance has been improving steadily since 2017, with good overall growth despite fluctuating revenue and margins, with reporting showing strong earnings growth in 2019. This growth path is seen extending out to 2022, with a very strong pickup in earnings forecast to occur in the two years ahead, and these strong expectations are matched by a strong majority positive consensus analyst sentiment and significant discount to target price projections.

Recent pricing history shows the company making strong gains out of the GFC slump, rallying more than 300% by 2012 before entering a precipitous four-year downtrend, ending with a seemingly minor 200% rally by early-2018. We are following freshly positive long-term signalling here as the stock emerges from a good support base, with linear resistance breaking in September, after pricing fell back into downtrend again over the last two years. Volatility is expected to continue as the stock secures new support, but with an excellent long-term setup and strong forecasting we think it could be a landslide opportunity.

Disclaimer

This report was produced by Taylor Securities Pty Ltd, which is a Corporate Authorised Representative (Number 414063) of Bespoke Portfolio Pty Ltd (AFSL 341991). Taylor Securities and Patrick Taylor (Representative number 414064) have made every effort to ensure that the information and material contained in this report is accurate and correct and has been obtained from reliable sources. However, no representation is made about the accuracy or completeness of the information and material and it should not be relied upon as a substitute for the exercise of independent judgment. Except to the extent required by law, Taylor Securities and Patrick Taylor does not accept any liability, including negligence, for any loss or damage arising from the use of, or reliance on, the material contained in this report. This report is for information purposes only and is not intended as an offer or solicitation with respect to the sale or purchase of any securities or financial products. The securities or financial products recommended by Taylor Securities and Patrick Taylor carry no guarantee with respect to return of capital or the market value of those securities or financial products. There are general risks associated with any investment in securities or financial products. Investors should be aware that these risks might result in loss of income and capital invested. Neither Taylor Securities and Patrick Taylor nor any of its associates guarantees the repayment of capital. WARNING: This report is intended to provide general financial product advice only. It has been prepared without having regarded to or taking into account any particular investor’s objectives, financial situation and/or needs. Accordingly, no recipients should rely on any recommendation (whether express or implied) contained in this document without obtaining specific advice from their advisers. All investors should therefore consider the appropriateness of the advice, in light of their own objectives, financial situation and/or needs, before acting on the advice. Where applicable, investors should obtain a copy of and consider the product disclosure statement for that product (if any) before making any decision.