CSE may have to wait three years to recover lost earnings

$100m cash to be available for acquisitions.

According to DBS, it estimates that about S$100m cash would be available for acquisitions over the next three years.

Here's more:

Out of this (i) about S$50m cash could be retained from IPO of UK business after returning cash to the shareholders (ii) another S$17m free cash flow could be generated each year (40-45% of earnings) given dividend payout ratio of 40%.

We assume that CSE will pay less than 10x PE and estimate that CSE could add S$10m earnings inorganically over the next three years. This translates to 10% earnings CAGR on base earnings of S$35m in FY13F.

The company could easily add S$7-10m earnings organically over the next three years. This translates to an additional earnings of S$2-3m each year or 6-9% earnings CAGR over 2013-16 on a base of S$35m in FY13F.

A healthy America should be able to offset a weaker Australia while growth should come from Middle East, Africa & Asia. Out of its outstanding order book of S$375m (+1.3% y-o-y) at the end of 2Q13, we estimate non-UK contribution to exceed 75%.

Here are the key trends to look for. (i) Revival of offshore oil & gas projects in the Gulf of Mexico may offset weakness in the mining sector in Australia.

(ii) Management hopes to win a few contracts in Africa in the LNG sector after spending considerable efforts so far

(iii) Management is seeing some traction in newer countries in Asia, namely Vietnam and Indonesia where it had no presence previously

(iv) Management expects growth in Middle East after completing zero margin projects mostly in 2012.

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