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Cavalier Corporation

By Dan Stratful

Friday 20th April 2012

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The construction sector took another hit today with Cavalier (NZX: CAV ) issuing another profit downgrade and the carpet maker said it will not pay any dividends in the current year ending 30 June 2012 (FY12).

CAV reports that due to a very poor year so far, underlying earnings for FY12 are likely to be between $3 million and $5 million after tax, well down on FY11’s normalised tax-paid earnings of $17.3 million. CAV will undertake a business improvement plan which means it will incur substantial one-off costs as it repositions its broadloom carpet businesses.

CAV’s downgrade came hours before Australian building products company Boral (ASX: BLD) also issued a profit downgrade and BLD now expects its profit (before Significant Items) for FY12 to be around $128 million to $153 million, down from its previous guidance of $150 million to $175 million (before Significant Items).

Both these downgrades also impacted Fletcher Building whose shares were also lower for the day, as the construction sector once again drifted lower. 

The building industry in Australia and New Zealand is obviously extremely subdued and this is CAV’s 3rd profit downgrade in FY12. It will also be the first time in a very long time that CAV hasn’t paid any dividends for a single financial year.

CAV looks like an appealing recovery stock when the time is right if it shows a strong bounce back in FY13, which it does with current FY13 tax-paid profit guidance of between $10 million and $12 million.

However there could be more bad news to come and it may be best to wait until there are at least some signs of improvement in its markets.

CAV’s shares fell ~10% on heavy volume of over 220,000 shares, easily its highest daily volume in 2012. From a technical analysis point of view $1.90 is a key support level which has held on 2 previous occasions.  

Status: AVOID

CAV’s shares today traded at $1.90

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,
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