Is the party about to get started for Spotless Group Holdings Ltd shares?

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It’s been a painful period for shareholders in facility service provider Spotless Group Holdings Ltd (ASX: SPO) since the company re-listed on the ASX via an initial public offering (IPO).

Since first trading in May 2014 the stock has lost around 35% with most of that decline occurring in December last year after the group issued a Market Update in which the group advised that the unexpected costs would weigh on the first half and full year results.

The revised guidance issued for the first half stated that revenue would materially exceed the prior corresponding period (pcp), that earnings before interest, tax, depreciation and amortisation (EBITDA) would be flat (inclusive of the one-offs) and that net profit after tax (NPAT) would be between 15% and 20% below the pcp.

With Spotless releasing its interim results for the six months ending December 31 today, it’s time for investors to take a look at how they stack up compared to expectations…

  • Sales revenue up 19% to $1.6 billion
  • Statutory EBITDA flat; underlying EBITDA up 18.6% to $156.5 million
  • Statutory NPAT down 20%; underlying NPAT up 14.3% to $64.7 million

In short, Spotless’ results today have met the group’s recently issued guidance and in response the share price has leapt around 8% to $1.20 as investors turn their attention to the group’s outlook…

Management reaffirmed the group’s December guidance for full year revenue to significantly exceed financial year 2015 with reported EBITDA expected to be flat. Reported NPAT is still expected to be around 10% below the pcp, while underlying NPAT is expected to be flat.

Attractive yield

The underlying performance of Spotless appears to be reasonable with management once again stating that short term, one-off impacts have been addressed. As such the stock would appear to be trading on an undemanding multiple.

Of equal appeal is the group’s dividend. An interim unfranked dividend of 3.5 cents per share has been declared. Assuming a final dividend at least in line with the interim is paid implies the stock is trading on a yield of 5.8%.

That’s an attractive yield compared to some of its Industrial peers such as Broadspectrum Ltd (ASX BRS) which has a forecast yield of 3.7% and Brambles Limited (ASX: BXB) on a forecast yield of just 3%. (source: Thomson Consensus Estimates)


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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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