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Cavalier Corporation

By Dan Stratful

Friday 10th February 2012

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Cavalier Corporation (NZX: CAV ) has been a good stock constantly paying out dividends in 3 installments during the year, so it came as a shock when it announced that its 1st interim dividend for the year ending 30 June 2012 (FY12) was cancelled.

This was due to a very poor start to FY12 as carpet sales volumes for the first four months were down 18%. CAV provided guidance of a tax-paid profit of between $8.5 million to $10.5 million for FY12 which is down by 40% to 50% on last year’s profit of $17.3 million, and the company blamed higher wool costs and a continuing soft residential market.

CAV is a mature business having been on the NZX for many years and it has weathered the ups and downs in its markets.

The sell-off in the shares has been harsh and adequately prices in all the bad news known so far, and the company should rebound as it always does.

Investors can consider CAV as a recovery stock whose earnings will pick up when the construction sector improves and while dividends will be lower in FY12, investors can position themselves for a re-bound in FY13 and beyond.

CAV was formed and listed on the NZX in 1984 and it operates two broadloom carpet businesses – wholly owned Cavalier Bremworth and 70% owned Norman Ellison Carpets.

CAV also has investments in a carpet tile business, a commission wool scouring operation and a wool procurement business and its Sydney based Ontera Modular Carpets is one of Australasia’s leading manufacturers and marketers of carpet tiles.

Status: GROWTH BUY

CAV shares today traded at $2.37

For portfolio, sharemarket and fixed income enquires contact:
Dan Stratful at Investment Research Group (IRG)
Authorised Financial Adviser (AFA)
0800 437 8489, 09 304 0232, dan.stratful@irg.co.nz
**A disclosure statement is available, on request and free of charge.

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