Shares to Buy Industrea (IDL)


Industrea IDL ASXIndustrea (IDL) is a Queensland-headquartered group of companies involved in the global provision of mining products and services.

IDL boasts a range of blue-chip clients across the globe, including BHP Billiton, Anglo Coal, Rio Tinto, Barrick Gold, Vale and Xstrata, as well as a selection of major Chinese bureaus, including Jincheng Mining Group.

The company’s stock has been in an uptrend since mid-2010 on a recovery for the resources sector – many companies within the sector have been among the hot stocks in recent months.

IDL also benefits from its exposure to big-name clients, which offer lucrative, steady, long-term contract support.

The group’s exposure to China is also a boon, with the region’s demand for our resources (especially coal) expected to remain a key driver for IDL going forward.

Operational diversity

IDL is constantly expanding its range of products and services, with its current range of mining products including collision avoidance systems, underground directional drilling, contractor management, mobile asset tracking and a Driver Safety performance index.

The company also distributes a select range of original equipment manufacturer (OEM) mining products for local and global companies.

A large focus is on outsourced contract mining services through its Huddy’s mining services subsidiary.

Overall, mining services accounted for 41% of IDL’s revenue in FY10. The group’s diesel equipment division provided 36% of revenue and IDL’s technology business represented 23% of overall revenues.

In terms of geographical exposure, Australia represented 57% of FY10 revenue whilst China accounted for 41%. The remainder of revenue was split between South America and other global regions.

Fighting figures

For FY10, IDL reported revenue of $313.2 million, up 21% on FY09.

Underlying earnings came in at $112.1 million, an 11% on-year increase, whilst IDL’s EBITDA margin sat at 36%.

Net profit after tax (NPAT) totalled $61.9 million, including significant non-recurring items, whilst adjusted NPAT was up 8% to $49.1 million.

Adjusted EPS was down 2% on FY09 to 5.29 cents per share whilst IDL declared a total dividend of 1.3 cents per share.

Of its FY10 results, IDL noted that improved efficiencies in its Australian operations lifted revenue and productivity through better capacity utilisation.

The company noted that 2H10 was particularly strong, with positive momentum going ahead for FY11.

Over the year, IDL acquired a manufacturing business in China and continued its expansion into the Hunter Valley, which remains an ongoing priority.

Chinese connection

The last year has seen IDL exporting in excess of $10 million per month in export sales to China, which has continued to display high demand for IDL’s services.

Going ahead, Industrea will be focused on the underground coal mining sector as the largest market for its products.

China is the largest coal producer in the world, producing 2.8 billion tonnes of coal in 2008 –12.5% of the world’s coal production.

China is expected to produce over 3 billion metric tonnes of coal in 2010 with over 95% of output sourced from underground mines.

As such, IDL is looking towards institutionalising key relationships with the major mining Chinese bureaus and establishing a Chinese manufacturing facility specifically tailored for the Chinese market.

Outlook

IDL, which recently reported strong FY10 results, notes business conditions are improving in the global and domestic mining sector, with the outlook for commodities remaining strong.

The group has a strong competitive position in China, and its Chinese manufacturing facility is expected to grow its China business further.

IDL issued in its AGM a positive long-term outlook and expects to report an increase in revenue and operating profit for FY11.

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