Accumulate Mercator Lines for target Rs 152: ULJK
ULJK Securities has initiated ‘accumulate’ rating on Mercator Lines with a price target of Rs 152. The company operates a fleet of 12 dry carriers, 13 tankers and four dredgers.
By ET Online |
MUMBAI: ULJK Securities has initiated ���accumulate��� rating on Mercator Lines with a price target of Rs 152. The company operates a fleet of 12 dry carriers, 13 tankers and four dredgers. It services large thermal-based power plants, steel companies and refineries.
In the shipping segment, increased demand for shipping vessels will keep the rates buoyant in the dry bulk segment. Mercator Lines has renewed its 4-year contract with Tata Power, a contract worth $320 million. This revision validates the brokerage view of firm dry bulk rates in the near future, which will have a positive impact on the profitability of the company.
The company is also looking for more assets in dredging, offshore and shipping business. The new streams will give better visibility of their earnings, as they are not subject to volatility like the shipping freight rates. This will translate into a strong operational and financial performance of the company in 2008-09 and 2009-10, says ULJK.
Sales will grow at a CAGR of 38 per cent and profit will grow at 40 per cent CAGR in FY08-FY10. The company has a strong cashflow position and the profitability ratios are also expected to show improvement with a return on equity envisioned at over 35 per cent in 2009-10.
Mercator Lines debt: equity ratio is at a four-year low and the company has scope to further leverage, says the brokerage.
The stock is trading at a PE of 7.6X its FY'09 earnings of Rs 15.2 and PE of 4.9X its FY'10 earnings of Rs 23.4. At the target price, the stock will discount 2008-09 and 2009-10 earnings of Rs 15.2 and Rs 23.3 by 10 times and 6.5 times respectively.
Increased revenue streams in 2009-10 make the stock more attractive at a PE of 4.9X its FY'10 EPS of Rs 23.4. The company is trading at a discount of over 50 per cent of its NAV. ULJK believes that going forward, the discount will narrow down to a fair discount of about 10 per cent after which the stock should trade at Rs 149.
In the shipping segment, increased demand for shipping vessels will keep the rates buoyant in the dry bulk segment. Mercator Lines has renewed its 4-year contract with Tata Power, a contract worth $320 million. This revision validates the brokerage view of firm dry bulk rates in the near future, which will have a positive impact on the profitability of the company.
The company is also looking for more assets in dredging, offshore and shipping business. The new streams will give better visibility of their earnings, as they are not subject to volatility like the shipping freight rates. This will translate into a strong operational and financial performance of the company in 2008-09 and 2009-10, says ULJK.
Sales will grow at a CAGR of 38 per cent and profit will grow at 40 per cent CAGR in FY08-FY10. The company has a strong cashflow position and the profitability ratios are also expected to show improvement with a return on equity envisioned at over 35 per cent in 2009-10.
Mercator Lines debt: equity ratio is at a four-year low and the company has scope to further leverage, says the brokerage.
The stock is trading at a PE of 7.6X its FY'09 earnings of Rs 15.2 and PE of 4.9X its FY'10 earnings of Rs 23.4. At the target price, the stock will discount 2008-09 and 2009-10 earnings of Rs 15.2 and Rs 23.3 by 10 times and 6.5 times respectively.
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Increased revenue streams in 2009-10 make the stock more attractive at a PE of 4.9X its FY'10 EPS of Rs 23.4. The company is trading at a discount of over 50 per cent of its NAV. ULJK believes that going forward, the discount will narrow down to a fair discount of about 10 per cent after which the stock should trade at Rs 149.
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