Two offshore results that matter for Aussie Small Caps

Andrew Smith

Perennial Value Management

Earnings updates from domestic companies were limited during April and continue to be so in May given the six monthly earnings cycle. However, investors can still draw on the quarterly reports from offshore companies to pick up trends which may influence stocks closer to home.


An obvious and well used example is Caterpillar which is seen as a barometer for the health of the mining services sector given it’s market leadership across the globe.


The result was very encouraging with a 29% increase in earnings per share guidance off the back of 5% increase in sales expectations. While the improvement was broad based, the largest increase in the order book was in the Asia Pacific as shown by the light yellow line below.

Such an improvement confirms that mining companies are spending again after years of cut backs and thus it is a clear positive sign for the whole mining services sectors in Australia. However, there is one stock for which these stats are particularly relevant and that is Austin Engineering (ANG). Austin’s main focus is manufacturing truck trays for clients using Caterpillar or similar equipment.


The result from Caterpillar supports the upgraded outlook provided by Austin in February for the current half (they lifted EBITDA* guidance to $11 to $15 million from more than$9.2 million based on a 69% increase in the order book since the Annual General Meeting). The lift seen in the order book for Caterpillar also suggests this strong 2H forecast by Austin could be repeated for the full year FY2018 (which would imply an earnings result ahead of consensus expectations).

Another less obvious result we studied was that of Volvo. It is perhaps little known that Volvo is one of the largest users of RPM Global (RUL) software with the dealerships using their simulation software to specify, demonstrate and sell Construction Equipment for quarries and small mines.


The Volvo results were encouraging with construction equipment orders up 34% in in the first quarter of2017  boding well for continued license sales for RUL l as dealerships expand and invest in the more buoyant sales environment.

 

*Earnings Before Interest, Taxes, Depreciation and Amortization


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Head of Smaller Companies and Microcaps
Perennial Value Management

Andrew commenced with Perennial Value in July 2008. Prior to joining Perennial Value, Andrew was Head of Research at Linwar Securities, a boutique broker specialising in smaller company research. Andrew joined Linwar in 2003 and during this...

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