No Pickups with Trucking
For companies that deal in capital-intensive vehicles, construction generally provides better growth opportunities than production. With large miners progressively shifting spending from capital expenditure to operating expenditure, the consequences are being felt by vendors.
This was evident in yesterday’s announcement by MaxiTrans (ASX: MXI). MaxiTrans is Australia’s largest manufacturer of trailing transport equipment, and is also a retailer of specialised vehicle parts. The company has considerable exposure to the mining and agricultural sectors.
In February, the company reported its December 2013 half year results. Their performance was weak in Queensland due to a poor agricultural season and soft housing and construction numbers. Management expected that profits in the June 2014 half year would be comparable. However, two months after the interim, the company has confirmed that tipper sales have not shown any signs of improvement, and the order intake has actually softened further.
MaxiTrans has attributed the performance to the continuing Queensland drought and declining investment in mining and resources. What was striking from the announcement was the mention that the Gladstone region, a major resources hub in Central Queensland, is declining more rapidly than expected, as some significant resource projects move from a construction phase to an operating phase.
The company downgraded its net profit guidance for the year to June 2014 by around 17 per cent, and this was largely reflected in the share price movement. The announcement, and subsequent reaction by the market, demonstrates that the headwinds in the industry may not yet be fully appreciated.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
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Andrew Legget
:
Thanks for the insight Ben. Although it would never have been a company that would fit my investment philosophy it is always interesting to see how such companies are performing to make sure that your initial view points are valid.
I like to think of an industries competitive and operational landscape as a fluid and dynamic environment similar to an ocean with changing tides.
Some industries and companies can propel themselves forward whilst others simply just follow the current. If that current then takes them into an undesirable place then they have little option but to accept it.
MXI definitley sounds like one of them that have no option but to go with the tide. It has no choice but to accept current demand with little ability to stimulate it. Such companies, whilst possibly attractive when the world is going well for them, in my view can not be seen as having a sustainable level of quality to justify an investment.