By Jenny Ruth
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Wednesday 15th September 2010 |
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Carpet maker Cavalier Corp's earnings will benefit significantly from one-off gains associated with Canterbury's earthquake, says Craigs Investment Partners.
It has raised its 2011 net profit forecast by 18% to $21 million and its 2012 forecast by 16% to $22 million. That compares with the $17 million net profit Cavalier reported for the year ended June 1010.
Some 100,000 homes were damaged by the September 4 quake and more than 500 will have to be demolished. Bad weather and the after-shocks haven't helped salvage operations.
"In our impact analysis, we assume some 15% to 30% of the 100,000 damaged homes will require re-carpeting at some point and we assume Cavalier will hold onto its 38% market share," the broker says.
It assumes an average home requires 128 square metres of carpet. Based on these assumptions, this should boost Cavalier's sales revenue by between $20 million and $39 million.
"Taking the mid-point of $30 million and applying an EBITDA (earnings before interest, tax, depreciation and amortisation) margin of 30.5%, this equates to and EBITDA contribution of $9.02 million," Craigs says.
"Key downside risks include a delay in the start-up of repair work and the number of damaged homes requiring re-carpeting is lower than our estimate."
Craigs has raised its 12-month target for Cavalier shares by 12% to $3.41.
Recommendation: Buy.
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