Integrated support services provider AssetCo’s (AIM: ASTO) broker Arden Partners noted today’s announcement of a contract win in Abu Dhabi, where the company will now develop and operate an emergency services training centre named the “Rabdan Disaster City”.
The training centre, whose development is scheduled to begin in 2010, is expected to open in 2012. Arden does now anticipate any profit contribution for the project until 2012, leaving its forecasts for the next year and 2011 unchanged. However, Arden said the medium term visibility on earnings increased with the contract win, which justified a higher price/earnings ratio (P/E) of 10, compared to the current 2011 P/E of 6.6 (31 March 2011 EPS of 9.9 p)
The bull points also included AssetCo’s greater exposure to the international market and its reduced dependency on the UK. The contract win was called a “highly significant milestone in the company’s development” won after 18 months of investment in the region. The group raised £15 million through the issue of preference shares by Assetco Abu Dhabi in January last year to support the development of its business in the Emirate, where Arder said the opportunities were highly significant considering the size of the Emergency Services Market in that region.
The group’s Capitalguard project, the seven year contract for the supply of an emergency fire crew capability service to the London Fire Brigade it secured back in July, was also proceeding well, with the training of 27 crews remaining on track for completion by the start of 2010.
AssetCo also provides fleet and equipment to Lincoln’s Fire Brigade.
Arden said the core integrated support service contracts with London and Lincoln would benefit from the award of additional contracts in the second half of the next year. The group’s total net debt at the end of September is anticipated to be £74 million, falling to £60 million by 31 March 2010 and £49 million 31 March 2011.
With 86% of Arden’s forecast 2011 EBITDA (earnings before interest, tax, depreciation and amortisation) now locked up in long term contracts, the broker said a P/E rating of 10 was a “realistic aspiration.” Arden said the current inherent value of the integrated support services earnings stream was understated in the current share price, and expected a re-rating to be driven by the current newsflow and other possible announcements including further wins in Abu Dhabi, exit from the lower margin vehicle assembly business, and confirmation that earnings remain in line when the interim results are released in December.
As a result, Arden Partners retained a ‘buy’ recommendation for the stock, which last traded at 73 pence following today’s 10% increase on the back of the contract win announcement.