- Bradken surprises with capital raising
- Funds to be used for increased capex and possibly acquisitions
- Broker earnings forecasts and price targets trimmed
- Two ratings downgrades on the back of the raising


By Chris Shaw

Bradken ((BKN)) yesterday unveiled a $162 million capital raising and the opening of a share purchase plan, with the proceeds to be used to fund planned growth capex and increase flexibility for potential acquisition opportunities.

As Deutsche Bank notes, capex plans have increased and now stand at $150-$160 million for FY12, which compares to the broker's previous estimate of $85 million. Credit Suisse sees growth capex as significantly accretive for earnings longer-term, taking the view Bradken can achieve a three year cash payback on this capex spend.

On the flip side, Credit Suisse suggests in the absence of any acquisitions the capital raising was not necessary, as debt levels were well below covenant levels and management's targets. Post the raising Bradken is expected to have around $250 million in balance sheet headroom to remain within gearing target levels.

On the back of the capital raising, earnings forecasts for Bradken have been adjusted, most brokers trimming estimates from FY12 and beyond. Consensus earnings per share (EPS) estimates for Bradken according to the FNArena database now stand at 61.2c in FY11 and 65.4c in FY12.

Brokers have also adjusted price targets, the consensus target according to the database now standing at $9.31. This is down from $9.64 prior to the announcement of the capital raising. There is a reasonable spread in price targets, ranging from $8.60 for Deutsche Bank to $10.00 for UBS.

Both Credit Suisse and Deutsche Bank have downgraded Bradken to Hold ratings from Buy previously on news of the capital raising. With Bradken's share price gaining around 13% in May, Deutsche Bank takes the view while acquisitions offer potential upside, the risk/reward profile at current levels doesn't favour a Buy rating.