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Buy Panceltica Holdings at 109.5p Background: Operations Scottsdale itself designs and manufactures steel roll forming machines, which are used to form lengths of galvanised steel into sections to produce panels or roof trusses, which when assembled form lightweight frames and structures for use in the construction of buildings. Each roll forming machine is controlled by a computer which includes proprietary software, enabling the design of the profile and formation of the steel sections. The division makes revenues from selling the steel rolling machines as well as on smart card payments as a function of usage. The group has the rights to exploit the Scottsdale technology in every country except Canada, Mexico and the US. Panceltica's head office is in Qatar, with subsidiaries in Turkey, Jersey and the UK. The group is currently working on two main contracts, the largest of which is worth $320 million and is for the design and build of 1,984 housing apartments with community and shopping facilities in Qatar, for the real estate development firm, Barwa. The construction phase is due to continue to mid-2008 Business Development: Panceltica is initially focusing on developing within the Gulf states of Saudi Arabia, Kuwait, UAE, Oman, Qatar and Bahrain, which together make up the GCC economic alliance. The directors believe given the level of enquiries received from potential customers and the additional resources available as a result of the pre-IPO fundraisings that additional contracts will be forthcoming in the near term. Further enquiries have already been received from potential clients in Dubai and Saudi Arabia. Outside the GCC countries the company believes that it has opportunities to grow in emerging markets such as the MENA region (Middle East and North Africa), India and Latin America. The group will also actively look for suitable acquisition opportunities. Management Chief Executive Officer, Paul Fraser has over 40 years experience as a manager and entrepreneur in the construction industry in the UK and overseas. He ran his own business in Qatar and Bahrain from 1976-1979, working on various residential and commercial property projects. Since 1992 Fraser has been a financial investor and a director in a number of small business ventures and investment projects. He returned to Qatar in 2003 to take advantage of new opportunities in the construction sector and he was a founding director of Panceltica Qatar in November 2005. Chief Financial Officer, Colin Fitzpatrick is an experienced accountant having worked for 10 years each at PriceWaterhouse and Grant Thornton. Following that he established his own partnership practice providing business advisory services to family businesses, which included construction and construction support businesses. The Non-executive directors include, Ghanim Al-Saad, the Chairman and Managing Director of Barwa; Faisal Belhoul, a founder and shareholder of Ithmar Capital, a private equity company incorporated in the Cayman Islands; and finally, Hameed Mostafawi, who co-founded the business along with Paul Fraser and has extensive experience in the engineering sector. Conclusion Construction is currently a booming industry in the Middle East. It is estimated that there are currently up to $884 billion worth of construction projects at some stage of planning in the GCC region and studies suggest that there are not enough contractors to meet demand. Panceltica believes that on this basis, and with enquiries that it has received to date it will continue to find significant opportunities for new contracts. A number of factors are driving the demand for affordable housing, schools, hospitals and other infrastructure in the region and there will be plenty of tendering opportunities for the company going forward. In fact, Barwa is looking to supply 50,000 residential units over the next four years in Qatar, providing a good opportunity for Panceltica to win further deals. In the year to December 2007 the company generated revenues of $123.88 million and pre-tax profits of $19.77 million. Additionally, $115 million of convertible loan debt was converted to equity on admission leaving the company almost debt free. Over 2007 there was a $37.2 million net cash inflow from operating activities and at the end of the period Panceltica had $44.75 million of cash in the bank. Since then a loan of $3.8 million and a $24 million dividend has been paid, leaving around $17 million in cash. Going forward this could be strengthened significantly, with the company receiving pre-payments before work on contracts commences, increasing cash balances as further deals are signed. In the current year the company is expected to post revenues of $320 million, again mainly achieved from the Barwa contract, and pre-tax profits of $59.1 million. In 2009 these figures should rise to $517.8 and $95.9 million on the basis of further contract wins. The company trades on a multiple of just over 9 times earnings falling to below 6 times next year, enjoying a very low tax charge from the GCC base. Those multiples look low but the forecasts are based on contracts not yet received so have significant risk attached to them. However, considering the demand for construction services in Qatar and the rest of theMiddle East, the company's attractive technology we think that these numbers are potentially achievable and as such we rate the shares as a speculative buy.
Key Data EPIC: PANC The value of investments can go down as well as up. Past performance is no guarantee of future success. Investing in equities can lose you part or all of your capital although the potential returns are theoretically unlimited. The tips given here are of necessity, general. They cannot relate to the individual circumstances of investors. Anyone considering following the recommendations contained here should seek independent advice. So, while we would not wish to reduce our liability under the FSA regulatory regime, we cannot otherwise be held liable if individuals suffer losses through following tips contained on this site. AllNewIssues.com is owned by t1ps.com Ltd which is regulated by the Financial Services Authority and can be contacted at 2/3 Floor, Henry Thomas House, 5 – 11 Worship Street, EC2A 3BH |
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