Resources demand fuels Fleetwood's profit

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Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published August 20, 2012 4:43 pm AEST

Fleetwood Corporation Limited (ASX: FWD) has today announced a 4% increase in net profit to $53.2m compared to last year, despite revenues falling 13%. The company declared a 43 cent fully franked dividend, taking the year's total to 76 cents, its 15^th consecutive increase in full year dividend.

Investors don't appear too happy with the result, with shares down 7.8% to $11.98 at the close. Fleetwood has two divisions, the first focused on manufactured accommodation and the second division focused on recreational vehicles, producing caravans, trailers and vehicle accessories such as canopies for 4WDs.

Strong demand from resources companies such as Woodside Petroleum (ASX: WPL) and Rio Tinto Limited (ASX: RIO), for accommodation at the company's Searipple village in Karratha, Western Australia remains a valuable source of recurring revenue each year. It's worth keeping in mind that accommodation agreements could be terminated at fairly short notice, leaving Fleetwood with an empty village.

During the 2012 financial year, Fleetwood was selected by the Gladstone regional council to build and operate an accommodation village for up to 1,000 people. Gladstone is the major processing and export hub for a large number of sizeable and diverse resource projects in the region. More than $50 billion is being spent by major resource companies on LNG, coal and aluminium related projects, including Santos Limited's (ASX: STO) Curtis Island LNG.

The company has also been contracted to build and operate 293 service workers' dwellings at Osprey, in South Hedland, Western Australia for 15 years, through an agreement with the WA state government.

With two major accommodation villages in two different states, plus the Osprey project, the company is exposed to major LNG and resources projects, and will no longer be solely reliant on Searipple village for recurring revenues.

That is important as the other part of Fleetwood's business is really struggling. Sale of caravans and trailers have been affected by weak consumer sentiment, and earnings before interest and tax fell from $18m last year to just $4m this year.

Foolish takeaway

Fleetwood's newest project, Osprey village, will start contributing revenues from the 3^rd quarter of 2013, with Gladstone village shortly after that. Currently trading on a trailing P/E ratio of 13.3 and a fully franked dividend yield of over 6%, it could be a worthy addition to your watchlist.

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Motley Fool writer/analyst Mike King owns shares in Woodside Petroleum. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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