[ad_1]
“The big three companies in the Seven Group – Westrack, Coates Hare and Boral – which we see as the beating heart of Australia’s mining, infrastructure and construction industries, continue to operate,” said Anthony Golovenko, portfolio manager at MLC Asset Management.
Mining volumes, not commodity prices, drive Westrac's results for Seven. credit: Erin Jonasson
In Westrac's case, recurring revenue from product support [maintenance] “The steady growth in parts underscores this resilience. Beyond commodity prices, it is ultimately volume that drives Westrac’s business revenues.”
Stokes also highlighted the transformation Boral's business has undergone under CEO Vic Bansal, since Seven took over minority shareholders in July last year, with profit margins in the mid-20s now seen as achievable.
“It was a fantastic result and a credit to the team,” Stokes said. “I think Vic and his team have driven a tremendous amount of change and performance in a short space of time.”
He points out that the Seven Group not only relies on revenue growth to deliver strong profit margins, but has also been adept at driving efficiency within these businesses.
“The other key point I would like to emphasise is that the work that has been done to enhance the operating leverage of each of our businesses has delivered margin expansion, and that has come through operational efficiencies and a concerted effort to drive that, particularly at Boral and Coutts,” he said.
Stokes also said inflation pressures appeared to be moderate, which would be good news for markets nervous about the RBA's focus on stubbornly high inflation levels.
“The pressures are starting to ease,” he added.
Stokes also said that efficiency gains at Seven Group also meant its workforce had not grown significantly. Combined with cost-cutting at other companies, that could point to a weaker labour market ahead.
This is also evident in the fact that the group no longer has the same pricing power it had when inflation rates rose following the Covid-19 pandemic.
download
“We’re not in the same environment that we were 18 months or two years ago, where there was strong pricing power,” he told analysts and investors on a conference call last week. “Our view is to ensure that we can hedge our inflation dynamics through pricing and continue to drive that in a disciplined way.”
With Seven Group's share price remaining below $40, analysts are expecting a significant upside with price targets higher than the previous record high of $42.28.
“We believe Seven Group remains well positioned for growth, supported by Westrack’s healthy outlook and Boral’s continued turnaround,” Macquarie analysts said in a report, raising their rating on the stock to $43.90.
[ad_2]
Source