Ferret's Stock to Watch: ALESCO CORPORATION LIMITED 08:38, Friday, July 06, 2007
Sydney - Friday - July 6: (RWE Aust Business News) **************************************************
OVERVIEW ******** Today Alesco Corporation Ltd (ASX:ALS) supplies strong industrial brands to niche markets in Australia and New Zealand.
Its customers include businesses in the building and renovations, mining and construction and scientific and medical sectors.
The company has a clear focus of investing in and developing industrial businesses holding leading industrial brands with high market shares in niche markets.
Lincoln Sentry Group is one of Australia's leading suppliers, distributors of hardware and components to the cabinet and furniture making industry and the window, door and glazing industries.
Parbury manufactures and markets a wide range of surface solutions for kitchen, bathroom and commercial applications.
Manufactures and distributes kitchen rangehoods, canopyhoods, ducting systems, laundry tubs, ironing centres and food waste disposers in Australia and New Zealand.
On Wednesday Alesco Corporation announced to the ASX that its Lincoln Sentry business had entered into an agreement to acquire the Joinery Products Hardware Supplies Pty Ltd business for $10.7 million.
Joinery Products has been operating for almost 20 years as a leading supplier of hardware accessories to door and window manufacturers.
It distributes through a five branch Australian network generating annual revenue of approximately $17 million.
The company is the exclusive supplier of Truth Hardware, a leading North American manufacturer of hardware for the timber and uPVC window market.
In addition, the business markets an extensive range of products from leading suppliers, including Lockwood and Whitco security and commercial hardware, Savio Hardware, Winhaus and Intek Plastics, and other associated products for the domestic window and door industry.
"Joinery Products is an attractive bolt-on acquisition for Lincoln Sentry's rapidly growing Window, Door & Glazing division," said Alesco's CEO Justin Ryan with some tongue in cheek.
But in a more important vein he added, "Lincoln Sentry is already well placed to benefit from the increasing focus on environmentally sustainable window and door products and systems, including double glazing, and the addition of the Joinery Products business will further enhance this position."
Joinery Products has a diverse and active customer base with more than 1,100 trade customers across the southeastern region and will trade as a stand alone company within the Lincoln Sentry Group with the existing management team based in Thomastown.
The business will report to Lincoln Sentry general manager Jim Brennan.
"The business allows Lincoln Sentry to further expand into the Victoria, New South Wales and South Australia markets," Mr Brennan said.
The purchase price of $10.7 million (on a cash free, debt free basis) represents a multiple of approximately six times FY08 EBIT (pre synergies).
Settlement is subject to a number of conditions precedent, with completion scheduled to occur on July 31.
This acquisition will be funded through existing debt facilities.
Results for the year have still to emerge but based on the first half to November 30, the result should be good.
Net profit rose 12.2 per cent to $26.9 million on a revenue of $53.3 million, up 14.3 per cent on the previous half year.
The construction & mining and scientific & medical divisions within the portfolio have experienced strong demand while the new home market, in both Australia (in particular NSW) and New Zealand, continue to experience difficult trading conditions.
The company reported record earnings per share pre amortisation of intangibles of 41.5c per share (cps), up 10.1 per cent (Nov 2005: 37.7cps).
Interim dividend was 27.5cps (fully franked) up 10 per cent (Nov 2005: 25cps).
The acquisition program contributed to earnings growth, offsetting the subdued new housing market.
Acquisition of Promedica ($21 million) and App-Tek ($3 million) were completed during the half.
Acquisition of Lincoln Sentry Group for $84 million, Flextool NZ for $6 million and EnviroEquip for $9.1 million all announced subsequent to half year balance date and will contribute positively to second-half earnings.
The improvement in all key ratios continues to reinforce Alesco's strategy of building a strong and diverse portfolio of leading brands in niche markets.
The strong improvement in the return on equity compared to the prior corresponding period has been enhanced by the earnings growth from debt funded acquisitions.
Since the end of the prior corresponding period the company continued to invest in new businesses with the acquisition of the Concrete Technologies, Flextool and Promedica businesses, and this is now delivering an improved return on equity.
SHARE PRICE MOVEMENTS *********************
Shares of Alesco yesterday fell 13c to $13.87. Rolling high for the year is $15 and low $11.18. Dividend is 58.5c to yield 4.22 per cent. Earnings per share is 65.13c and p/e ratio 21.3. The company has 71.1 million shares on issue with a market cap of $987.3 million.
In an interview with Corporatefile, chief executive Justin Ryan said the acquisition of Lincoln Sentry Group was to increase the company's exposure to the growth trends in the Australian kitchen, bathroom and laundry marketplace, particularly the growing renovation segment.
"We consider the prospects for growth are strong in both the medium and the long term," Mr Ryan said.
"This is an area where we are already active through our Parbury and Robinhood businesses, and this acquisition will enable us to capture more value more quickly than we could through organic growth alone.
"Over the past four to five years there has been a trend towards renovations as a proportion of total building spend."
Mr Ryan pointed out that currently, for every three kitchens built, one is a new build and two are renovations, with this proportion growing in favour of renovations as housing stock matures.
"An attraction to us is that renovations, unlike new build are not cyclical," he said.
"In addition to these trends, the actual proportion of renovation budget being spent on kitchens continues to increase as kitchens become ever more central to our lifestyles.
"It is a very attractive growth segment of the market," Mr Ryan declared.
He said there were several ways that the company sees the acquisitions fitting into Alesco strategy.
"A key goal we have is to develop industrial businesses in niche markets and certainly Lincoln Sentry fits that description."
The CEO added that Alesco intends to develop a dedicated and focused hardware business to be consolidated under the Lincoln Sentry brand.
This will also provide a dedicated and focused decorative surfaces business under the Parbury brand.
As a result, the hardware business that is presently part of Parbury will be transferred to Lincoln Sentry.
Integration planning will take place between now and completion of the deal.
BACKGROUND **********
The origins of Alesco can be traced back to the last decade of the 19th century in Western Australia.
Originally known as Atkins Carlyle, the company changed its name to Alesco Corporation Ltd in 2001.
In 1896, Charles Atkins & Co Ltd, Oil and General Merchant Importers, opened its WA premises in Fremantle.
In 1971, Charles Atkins & Co. merged with another longstanding West Australian-based company, Carlyle and Company, to form Atkins Carlyle.
On June 13, 1979, the company listed on the Australian Stock Exchange.
In the 1990s Atkins Carlyle began a program to move its business away from the traditional base as distributors of commodity industrial and automotive products.
In 1996, McLeod Accessories, a leading distributor of motorcycle accessories was acquired. The group's activities in this area were expanded with the acquisition of Conco Trading and London Trading in 2001.
1997 saw the acquisition of Fennell Tyres, a leading specialist distributor of earthmoving tyres, followed by the purchase of Marathon Tyres in 1998. A number of smaller earthmoving tyres acquisitions were subsequently made and from 2000, the business has traded nationally under the Marathon Tyres name.
In 1999 Ingram Corporation, a leading distributor of specialist automotive electrical and air-conditioning components was acquired.
2000 saw Parbury Ltd purchased by a public takeover. Parbury is a branded building products group and has operations in supplying decorative panels and hardware products to the cabinet, furniture and shopfitting markets and supplying specialist chemicals to building and construction markets.
2001 was a pivotal year in the group's development with the final exit from the commodity automotive parts business and the sale of the original industrial consumables business of the company. Following the sale of trading name Atkins Carlyle with the industrial consumables business in July 2001, the group changed its name to Alesco Corporation Ltd in 2001.
Lincoln Sentry is one of Australia's leading suppliers and distributors of hardware and components to the cabinet and furniture making industry and the window, door and glazing industries.
The business markets an extensive range of leading domestic and global hardware and component brands, including Blum, Assa Abloy, 3M and Dow Corning. It was acquired by Alesco on February 1.