Key statistics: ASX: FWD
Closing share price: $2.630
52-week high: $3.300
52-week low: $1.885
Most recent dividend: 1c
Annual dividend yield: 2.25%
Fleetwood has not yet sold its troubled RV unit but it may be one step closer
Fleetwood has issued an ultimatum for its long-struggling recreational vehicle (RV) business. Management has outlined specific short-term targets for the struggling segment to meet or face the chop.
In an otherwise reasonable interim result, RVs stood out for the devastating impact the segment continues to have on group profitability.
Fleetwood’s aggregate numbers – again – appear weak. Underlying earnings before interest and tax (EBIT) fell 30% to $4.4 million and post-tax profit fell 35% to $2.7m, implying full-year net profit of around $5m-$6m.
The reasons to hang on start to make sense once you separate the segments. Losses from RV, which had been shrinking, have again blown out from a $3m in the previous corresponding period to almost $6m this period.
Exclude those losses and the rest of the company potentially trades on a price earnings ratio of 10 with further scope to release capital, increase utilisation at the Searipple mining camp at Karratha and raise margins from manufactured accommodation.
We always suspected that the Searipple accommodation village was a high-returning business. Yet even we were surprised by the 39% return on capital employed – and that while the village is only half-utilised.
The manufactured accommodation business now accounts for the bulk of revenue and profit, generating $6m in EBIT for the period on a strongly rising revenue base.
While this will never be a wonderful business, there are plenty of ways for Fleetwood to raise profitability.
Operating improvements across the group have already resulted in stronger profitability but all that good work is threatened by an RV business that continues to make larger losses.
Even if losses were eliminated, the industry is awful. With over 80 competitors all chasing relatively low volumes, it is fiercely competitive.
By August, we need to see operating improvements from RVs or definite steps to exit the business. For now HOLD.