PWK 1H07 results

Pipe Networks (PWK) reported 1H07 results yesterday Feb 2nd summarised in the table above. Whilst growth on every line from Sales to NPAT has been impressive from a year ago I believe it is more instructive to compare 1H07 results to 2H06 as the network from which PWK derives the vast majority of its revenue stood at just 174 kms at the end of 1H06 compared to 724 kms at the end of the current period. Most of the construction taking place in 2H06 at the end of which the network reached 560 kms.On that basis revenue growth has still been impressive up 27% from 6 months ago. The company cited some key contracts that came online during the period as driving the growth. EBITDA was up 20% from 2H06 reflecting costs growing slightly ahead of revenue for the period. NPAT was up 10% on 2H06 due to higher depreciation charges and net interest expense reflecting an increase in capital spending and borrowings.

Compared to my own forecasts, Revenue was lower than expected whilst EBITDA and NPAT were higher reflecting my belief that margins would deteriorate slightly due to capex spend. However it was pleasing to note not only that the company beat my forecast EBITDA and NPAT numbers but that they managed to maintain margins. An area of concern was the negative cashflow from operations of $(0.7m) for the period. However, examining the balance sheet receivables grew 64% to $6.3m from 6 months earlier whilst payables actually declined 20% to $3.1m.

Looking ahead the company anticipates continued revenue growth for the rest of calendar 2007 as the full effect of the $8.5m capex spend is realised. The company will commence construction of a $2m data facility this month with the full effects to be felt in FY08. Management "believes that the company is well on track to meet full year forecast profit of between $4.7m to $5.0m." Accordingly I have made little change to my full year earnings forecast for FY07.