Despite a market capitalisation of $1.1 billion, professional engineering and consulting firm Cardno Limited (ASX: CDD) would not appear to be widely followed by investors. In recent times, lack of investor enthusiasm for the stock may be due to Cardno being considered a mining services company. This would be a mistake however, as Cardno is not a mining services company.
Certainly Cardno does have exposure to this sector, however its operations are much more varied and skewed away from the mining sector. The stock has produced a total shareholder return of 21.2% per annum for the last decade, however the share price over the past 12 months is up just 5.3%. The S&P/ASX 200 Index (INDEXASX: XJO) in contrast has gained 9.3%.
Here are three reasons to be positive about the outlook for a company that has only reported two years of earnings per share (EPS) decline (FY 2013 and FY 2014) in its ten year history as a listed company.
EPS growth set to resume.
EPS slipped 5.5% in FY 2014 to 52 cents per share but the group did record an 8.7% growth in revenues and 20.4% growth in backlog of projects. With management suggesting that the firm will return to positive EPS growth in FY 2015 it looks like the hiccup which occurred over the past two years has passed.
Global expansion opportunities and exposure
Cardno has been an acquisitive company and this has helped the firm significantly expand its overseas operations. In fact only 32% of fee revenue now comes from Australia and New Zealand with the majority (58%) of revenue coming from the Americas. This positions the group to benefit from the stronger growth rates in both North and South America and also provides shareholders with exposure to benefits should the Australian dollar weaken.
Solid dividend
The board has maintained the dividend at 36 cents per share for the past three years, assuming EPS growth resumes then shareholders should expect to see the dividend raised in the future. With the share price hovering near $7, this equates to a fully franked yield of 5.1%.
Overall, Cardno certainly has a number of positives attributes and its long-term outlook for both organic and acquisitive growth remains appealing.
