Daily ShareChat: Cavalier Corporation

By Jenny Ruth

Thursday 19th November 2009

Cavalier Corp's earnings for the first four months of the current financial year are tracking 5% ahead of budget although they hare down 30% on the same period a year earlier, says Forsyth Barr analyst John Cairns.

"Cavallier had a good start to the previus year and it was only over the balance of the year that residential carpet demand plummeted," Cairns says.

"Residential carpet demand is beginning to stabilise, particularly in Australia, however volumes are around 20% lower than normal trading conditions."

Commercial carpet demand is continuing to soften in the absence of a pipeline of new projects.

"Cavalier is well-managed with significant operating leverage to a recovery in expenditure on discretionary consumer durables," Cairns says.

In the meantime, the company's net debt of $64.7 million, giving it a 42.5% gearing ratio, is clearly sustainable and it remains compliant with all its banking covenants, he says.

Still, the company is pursuing ongoing debt reduction opportunities and is continuing to review all internal cost structures and supply agreements. It also has a number of productivity and quality improvement programs in place, he says.

Cairns is forecasting reported net profit will ease from $14.9 million in the year ended June to $14.5 million for the current year before rising to $16.1 million in 2011.

BROKER CALL: Forsyth Barr rate Cavalier Corporation as hold.

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