Stock Spotlight - Cardno (CDD)

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By Jason Fittler

Key Points
1. 2009 forecast profit between $31M and $33M up 13-24% on last year.
2. Dividends forecast to increase through to 2011.
3. Expected to benefit from economic recovery.
4. Low risk play in the sector.

Company Overview

Cardno Limited (CDD) owns a group of companies that operate in the consulting engineering services industry and the related engineering software industry. The Company's primary focus is on providing professional services associated with the planning, design and delivery of physical and social infrastructure to help build new communities and to improve living standards in developing and developed countries around the world.

CDD provides infrastructure and management solutions to a wide range of public and private clients in Australia and overseas in the area of Building & Property; Coastal, Ocean & Marine; Environment & Water Quality; International Development Assistance Engineering; Landscape Architecture; Management Services; Mining and Resources; Surveying; Transport; Urban Development, Water & Wastewater.

2009 Forecast Profit

CDD has announced that it expects to report full year 2009 net profit after tax in the range of A$31m-33m. This would be a record profit, up 13-24% on year on year, (A$27.45m), but would include full year contributions from the 2008 acquisitions and a full second-half contribution from the Florida-based TBE infrastructure design group acquired in September 2008.

Expect to Benefit from Economic Recovery

CDD is likely to be an early beneficiary of an economic turnaround in the private sector due to its front-end (design) exposure to construction and development design. We do not anticipate a rapid recovery, but there do appear to be signs of improvement, particularly in NSW and Victoria. We expect CDD to continue its growth strategy of acquiring complementary design businesses. However, we retain the view that acquisition value is likely to improve in the second half (post audited accounts) as realities hit and expectations adjust.

We regard continued improvement in CDD’s Aid business a positive, as well as the award of public sector (stimulus package) contracts. Recent successes include the following:

1. Cardno TBE is the preferred tenderer for a major Florida highway project (the I4/Crosstown connector in Tampa), which will be funded by the US Federal government’s Stimulus Package and the State of Florida. Cardno TBE will provide construction, engineering and inspection services for the Florida Department of Transport. It is anticipated that Cardno’s consultancy fees will be in excess of US$12m (AU$15m) over five years.

2. Secured more than 100 building design projects in Queensland, New South Wales, Victoria and Western Australia.

3. Continued strong activity
in local government infrastructure and water and wastewater.

Target Price and Yield

The consensus price target on this stock is $4.11 some 20% above the current market price of $3.39. The company has a forecast dividend of 8.23% fully franked, this is a gross yield of 11.7% in the 2010 year. It is expected to increase to 8.92% or a grossed up this a 12.7% return for the 2011 year.

Given the capital growth and yield this stock will provide an excellent return on your investment in the coming years. As such I would look to buy this stock with a 3-5 year time view. I would expect to see this stock start to be re-rated in early 2010.


This is one of those stocks in a prime position to capitalise on the current government spending.

As such it will be one of the first stocks to lead the market out of its current down trend, the low point for this stock was $2.70 in this Bear market. I do not expect to see it get back that low in future; I will be buying at these prices.

If you are interested in taking advantage of this opportunity please contact your advisor on 07 4771 4577.