Consumer cyclical

Fleetwood lands $52m-$70m contract with Rio Tinto but won’t return to profitability until FY23

Fri 01 Jul 22, 2:54pm (AEST)
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Key Points

  • The 5-year agreement will see Rio Tinto secure 250 rooms nightly for FIFO personnel
  • The company posted a first half earnings (EBITA) loss of -$1.5m on revenue of $209.2m
  • 2H FY22 is expected to be similar to 1H FY22

Building solutions smallcap Fleetwood (ASX: FWD) received a welcomed kicker to its embattled share price, down -37% over the past year, after signing a five-year agreement with Rio Tinto (ASX: RIO).

Investors gave the announced $52m and $70m agreement to provide the big miner with accommodation services at Searipple Village in Karratha, the thumbs-up today, with Fleetwood’s share price up 8.49% two hours out from the close.

The 5-year agreement will see Rio secure 250 rooms nightly for all FIFO personnel needing accommodation in Karratha, Dampier or Wickham, where accommodation cannot be met by the miner internally.

Commenting on the agreement, Fleetwood’s CEO Bruce Nicholson noted:

“We are delighted to continue our long-standing working relationship with Rio Tinto. This contract underpins the utilisation of Searipple Village over the next five years and provides the basis for further occupancy in this core asset.”

Underperformance update

Today’s announcement follows last week’s update on the ongoing underperformance of a key project, the significant impact of cost increases, and material; and labour shortages on the overall performance of the business.

Project delays associated with poor weather on the east coast, plus labour and materials shortages have significantly hampered progress across projects in NSW, Vic, and WA during the second half of FY22.

The company has also endured major delays and cost escalations on the Ti Tree Camp upgrade mining project in WA.

Don’t hold your breath

As a result, management advised the market to expect second half earnings (EBITA) to be similar the first half when the company reported an earnings (EBITA) loss of -$1.5m on revenue of $209.2m.

At the time, the company anticipated a return to profitability in the second half of FY22, but clearly that is no longer the case.

Based on the order book and outlook across the operating businesses, Fleetwood now expects to return to profitability in FY23.

During first half FY22 the company managed to maintain a strong cash position of $56.2m.

Consensus does not cover this stock.

Based on Morningstar’s fair value of $2.83 the stock appears to be undervalued.

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Fleetwood share price chart.

 

Written By

Mark Story

Editor

Mark is an investigative financial journalist and editor who started his career working for Marathon Oil in London. He has a degree in politics/economics and a diploma in journalism. Mark has worked on 70-plus newspapers and financial publications across Australia, NZ, the US, and Asia including: The Australian Financial Review, Money Magazine, Australian Property Investor and Finance Asia. Mark is passionate about improving the financial literacy of all Australians through the highest quality content. Email Mark at [email protected].

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