Stocks to Buy Campbell Brothers (CPB)


ASX CPB Campbell BrothersCampbell Brothers (CPB) provides analytical testing services in the key areas of mining and mineral exploration, commodity analysis, environmental monitoring, food analysis and equipment maintenance.

The company operates three main businesses: the ALS Laboratory Group, Campbell Chemicals and Reward Distribution, with operations spanning Australia, New Zealand, Asia, North & South America, the Pacific and Africa.

Though CPB’s FY10 results included a 30% profit decline (in line with company guidance), CPB yesterday reported record 1H10 results.

CPB is benefitting from recovering global economic conditions, in particular an uplift in global mineral exploration activity, which has been reflected in strong revenue growth for its ALS division.

Delightfully diversified

Though the market has always shown appreciation for CPB’s ALS division – considered the group’s trump card – the company has started to see growth in its other divisions.

CPB’s Reward Distribution Group supplies non-food consumables to motels, hospitals, restaurants, fast food chains, five-star hotels, nursing homes, sport clubs and the retail sector.

The company’s Chemicals division is one of Australia’s leading importers, manufacturers and distributors of chemicals and associated hygiene products, with its business units comprising Cleantec Chemicals, Panamex Pacific and Deltrex Chemicals.

CPB also boasts a minerals division and coal business, adding up to a company with exposure to a wide array of sectors that rely on CPB’s analytical testing services.

This broad scope allows CPB to benefit from market cycles: when one sector is underperforming, CPB has others to take profits from.

Geared for growth

Even in the face of stock market volatility across 2009, CPB continued on with its goal of business expansion and diversification in laboratory testing services.

Over FY09, CPB acquired two North American-based businesses: Staveley Services, a leading fluid analysis group, and DataChem Laboratories, an environmental analytical laboratory group.

The group also expanded in Asia, acquiring IQG Laboratories, the premier food/ environmental technology laboratory in Thailand, fitting in with CPB’s strategy of entering the food analytical market.

In November 2009, ALS expanded its profile in the Australian water services sector with the acquisition of Ecowise Environmental Pty Limited (now part of ALS Environmental).

CPB has also recently taken over industrial services company PearlStreet, which has been absorbed into the group’s new ALS Industrial division.

A hearty half

Yesterday, CPB impressed the market by confirming a record net profit after tax (NPAT) of $66.25 million for 1H10.

The result was up 73% on 1H09 and was generated from revenue of $547.53 million, up 37% on year.

CPB declared a partly franked (50%) dividend of 65 cents per share, up from 45 cents a year ago.

Chairman Geoff McGrath said the record performance was achieved despite the dampening effect of a stronger Australian dollar on foreign earnings translation, and reflects both a recovery in business conditions and CPB’s preparation for that recovery.

McGrath noted that the recovery in global mineral exploration activity in particular lifted demand for the analytical testing services provided by the ALS Minerals division.

ALS boasted a 56% increase in revenue over the half, with the ALS Environmental and ALS Coal divisions recording very strong revenue growth.

The new ALS Industrial division generated revenue in excess of $57 million for the half year.

Outlook

CPB was one of the hot stocks in 2009, and has continued to advance in 2010 following a string of well-placed and organically pleasing acquisitions.

The ALS division – CPB’s trump card – performed very strongly in 1H10, which included a record NPAT of $66.25 million, up 73% on the prior year.

As the global economic recovery gains momentum, CPB has seen strong trading in October and November and forecasts underlying earnings for FY11 of $120-$130 million.

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