- Bradken's full year result met last year's guidance
- Guidance for FY12 implies further solid earnings growth
- Forecasts and targets adjusted, Brokers maintain Buy ratings

By Chris Shaw

In August of last year management at consumable products and capital equipment group Bradken ((BKN)) guided to a FY11 EBITDA (earnings before interest, tax, depreciation and amortisation) result of $192-$200 million and yesterday full year earnings were confirmed in the middle of this range.

Bradken's EBITDA for FY11 printed $196.1 million, RBS Australia noting the result implied strong 2H performance of around $106 million despite adverse currency movements, wet weather and an expected decline in earnings from the rail division.

BA Merrill Lynch saw the three key takeaways of the result as solid revenue growth, an increase in marginal gross profit and a capital heavy growth path for Bradken, the latter confirmed by an underwritten dividend reinvestment plan for the final dividend for FY11.

Along with the result, RBS notes Bradken management reiterated expectations for further solid EBITDA growth in FY12, which would translate to net profit after tax growth of 35-40% for the year. As the result was in line with previous guidance and guidance for the coming year has been maintained, changes to earnings estimates across the market have been modest.

As examples, RBS has cut its earnings per share (EPS) estimates by 0-1% through FY13 and Deutsche Bank has trimmed its numbers by 2-7% respectively. Consensus EPS estimates for Bradken according to the FNArena database now stand at 71.6c for FY12 and 82.2c for FY13, which compares to the 61c achieved in FY11.

The earnings outlook appears well supported, RBS noting the US and Rail business enjoyed a strong order book in the fourth quarter of FY11 and this shows no signs of weakness despite the current uncertain macroeconomic environment.

As well, UBS notes Bradken is now a different business than in the previous cycle, as recent acquisitions mean consumable products account for about 70% of group sales, while sales to international markets are now a larger part of the group's business.

These changes represent proactive steps by management in the view of UBS and should support capitalised annual growth in net profit after tax of 21% over the next three years on the broker's numbers.

Credit Suisse also supports Bradken's move to increase the focus on core mining consumables, seeing the move as providing some volume and demand stability even allowing for volatile markets. Internally funded capex is also expected to deliver additional support to earnings in coming years.

Estimates are slightly more conservative than those of UBS but Credit Suisse still expects Bradken will be able to generate average annual earnings growth of 15% to FY14. This is before any improvement in commodity volumes.

While changes to earnings estimates have been modest, price target cuts for Bradken have been more pronounced, this a reflection of both higher working capital assumptions and a marking to market of key valuation assumptions.

The FNArena database shows a consensus price target for Bradken of $9.41, down from $9.89 prior to the profit result. Targets range from $8.70 to $10.15. What hasn't changed is the positive view of brokers covering Bradken, as the database shows a perfect six-for-six Buy ratings.