Cabcharge Australia (CAB) Update

Submitted by Jim Thesiger on 15 May, 2008 - 18:13

MRE has retained it’s outperform recommendation for CAB with a $11.05 price target, with the suggested upside of over 20%.

Cabcharge Australia (CAB) – Taxi!!

Cabcharge Australia Limited (CAB) has reported on the performance of its non-core investments, a 49% stake in Westbus, which accounts for around 11% of NPAT and a 33% stake in Cityfleet (UK), which accounts for around 3-4% of NPAT. Today, Macquarie Research Equities (MRE) reviews these results and the expected performance of CAB in the near term.

Westbus continues to surprise with strong returns, the March quarter figures are up 45% as a consequence of a substantial increase in turnover. The plans to build a bus assembly plant near Newcastle are advanced with completion set for March 2009. Investors seem to be unimpressed by the plants prospects despite the possibility of attractive returns on capital of over 30%. The plant will be able to produce 200 buses per annum with 70 of them committed to be used as replacements to the existing Westbus fleet. The residual will be taken up by excess demand in the Australian market where there is currently a shortfall of around 300-400 buses a year.

Cityfleet has reported expected poor numbers thanks to a weakening UK market. A 33% drop in turnover and a 14% appreciation in the Aussie Dollar have contributed to this result.

MRE has retained it’s outperform recommendation for CAB with a $11.05 price target, this represents upside of over 20%. It is estimated that around 96 % of CAB is performing to expectations despite the poor result from the UK business. MRE states that CAB represents a good risk reward investment in the current environment.