As we head into the midst of the number crunching season I thought it would be a good time to review some of the highs and lows of our corporate sector. I’ll start with the good: Carsales (ASX: CRZ). If there was any greater evidence of the growth of the Digital Economy this is it. From its first revenues in 1998, the $100m in EDITDA it is now producing is testament to its huge success as the ‘go to’ place for online car classifieds The huge take up from dealers and private buyers and sellers has still more room to…
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As we head into the midst of the number crunching season I thought it would be a good time to review some of the highs and lows of our corporate sector.
I’ll start with the good: Carsales (ASX: CRZ). If there was any greater evidence of the growth of the Digital Economy this is it. From its first revenues in 1998, the $100m in EDITDA it is now producing is testament to its huge success as the ‘go to’ place for online car classifieds
The huge take up from dealers and private buyers and sellers has still more room to grow and the company is confident of this growth either organically or by acquisition. Data from the industry suggests that 75% of automotive browsers are looking at a Carsales website, a dominant position that I like. The largest contribution is from the dealer group where a restructure has focussed on value for the dealer rather than trying to sell them advertising.
The company is talking acquisitions which to our ears is a bit like the George Michael singing one from his new album at the closing ceremony — we want to hear more of the old stuff — and so it is at Carsales. I want them to stick to their knitting but if they must buy other businesses let us hope they get it right. I would suggest a look at overseas markets perhaps to replicate the business model they have in Australia.
At a P/E of around 20, Carsales isn’t cheap, but then industry leaders rarely are… a Mercedes is always going to cost more than a Hyundai..but which would you rather drive? I’m a Mercedes man.
Now to the bad, Cardno (ASX: CDD). We have now had 8 years of straight record profits and earnings per share growth. Not too bad a track record considering this company has increased its shares on issue by 60% since the beginning of 2010. Acquisitions have been the fuel in the Cardno rocket and this aggressive strategy increases the chance of disappointment. The stock is currently trading on a P/E of around 13 times FY13, which may be a little expensive. Investors who have been in this one might want to think about starting to lighten the load a little. Resource investment has peaked and as such Cardno may find it harder to grow at the rate it has been without yet more acquisitions, and this brings risks. My recommendation is move on, there’s nothing but execution risk here.
And finally, the ugly — United Group (ASX: UGL). Straight to the naughty corner for this one I am afraid. The results on Monday were enough to send shivers down the backs of mining services companies everywhere (we were all thinking it after all… just no one was saying it). The resources boom is waning. All the negative talk is now translating into negative actions from companies as they wind back their growth ambitions. United Group’s share price has promptly given back 10% as it stabilises at lower levels. However it has a record order book at $9.6 billion and a diverse business model so it’s not all bad news despite CEO Richard Leupen raising concerns about global uncertainty and forecasting that 2013 will be a similar year to the last. Not too bad really, but it doesn’t pay to disappoint. At a P/E of around 11, any further weakness would justify its return from the naughty town and might be one to consider buying especially if you have a more optimistic view of the Euro woes.
Foolish bottom line
So there you have a brief glimpse at three recent reports and with more to come, we are sure to get more disappointment and surprises, that’s what makes it interesting. But the key thing to bear in mind is once you have disappointed the market it’s hard to get back in their good books.
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Motley Fool contributor Henry Jennings, of Cameron Stockbrokers, currently has no position in any of the equities mentioned; however, Cameron Stockbrokers’ clients may have such positions. The Fool’s disclosure policy includes certain trading restrictions that apply to [Stockbroker]. However, his clients are not subject to our disclosure policy, and thus are free to trade any such equities. The Motley Fool has a disclosure policy.
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