SELL Fleet­wood

Money Magazine Australia - - SHARES | IN BRIEF - Gau­rav Sodhi is the deputy head of re­search at In­tel­li­gent In­vestor, owned by In­vestSMART Group.

Fleet­wood has just an­nounced the sale of its loss-mak­ing car­a­van busi­ness, in­stantly restor­ing prof­itabil­ity for the group by clos­ing a seg­ment los­ing more than $10 mil­lion a year.

ASX-listed Apollo Leisure will ac­quire the Wind­sor and Coro­mal brands as well as in­ven­tory for the grand sum of $1 mil­lion and, in re­turn, Fleet­wood turns from a busi­ness mak­ing about $7 mil­lion a year in net profit to one mak­ing about $20 mil­lion a year.

Apart from car­a­vans Fleet­wood op­er­ates two core busi­nesses: it leases out ac­com­mo­da­tion at its min­ing vil­lages in Western Aus­tralia and it man­u­fac­tures ac­com­mo­da­tion for the ed­u­ca­tion and re­tire­ment sec­tor. The min­ing bust had left Fleet­wood with the loss-mak­ing car­a­van busi­ness. Ag­gre­gate prof­its crum­bled to al­most noth­ing and by 2016 it was record­ing EBIT losses. Last year, it made an af­ter-tax profit of just $5 mil­lion.

For­tu­nately, the vil­lages and ac­com­mo­da­tion busi­nesses have flour­ished and off­set the car­a­van cliff. Fleet­wood hasn’t been a dis­as­ter but it hasn’t worked out as well as we had hoped.

The sale of car­a­vans leaves the high-re­turn­ing vil­lages and a lumpy ac­com­mo­da­tion busi­ness that should gen­er­ate pre-tax profit of about $20 mil­lion. That im­plies an en­ter­prise value to EBIT mul­ti­ple of about eight, which is about right for a busi­ness of this qual­ity.

As a san­ity check, we note that Fleet­wood now trades in line with its tan­gi­ble as­set back­ing. We don’t think there is a mis­pric­ing here any longer. SELL.

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