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Growth Portfolio: GALE Pacific Ltd (ASX: GAP)


Published 20-JUL-2016 00:00 A.M.


2 minute read

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Overview: GALE Pacific Ltd ("GALE", "the Company") is an Australian manufacturing company focused on building products and home improvement, distributing a range of commercial and domestic applications and polymer textiles. The company’s product portfolio comprises shade cloths, leisure products, DIY household, and glass products and is typically sold to professionals in architecture, building, and construction, agriculture, transport, or the mining industry. GALE operates in Australia, New Zealand, the USA, Middle East, and China.

Catalysts: GALE is on track to post revenue growth for the fifth consecutive year. A strategic review is expected to improve the supply chain and reduce costs which should result in higher profit margins. The company is witnessing strong demand in its key markets Australasia, the Americas, and the Middle East, and management targets the distribution of a dividend-yielding nearly 5%.

Hurdles: Despite continuous revenue growth, earnings have been volatile and there is no guarantee that the strategic review will yield cost savings. Approximately 30% of GALE’s revenue is derived from overseas and is therefore subject to currency exchange fluctuations. With net debt at ~2x EBITDA, these borrowings may constrain the company’s ability to expand.

Investment View: GALE offers profitable exposure to construction and consumer discretionary industry trends. We are attracted to the company’s revenue growth trajectory, increasing demand for its products, and improved operational performance, which is expected to improve profit margins. Earnings volatility and balance sheet gearing are primary hurdles. Witnessing growth across most of its key sectors, management may direct surplus cash towards higher dividend payments or reinvest in growth initiatives. We initiate coverage with a ‘buy’ recommendation.


General Information Only

S3 Consortium Pty Ltd (S3, ‘we’, ‘us’, ‘our’) (CAR No. 433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information and is for informational purposes only. Any advice is general advice only. Any advice contained in this article does not constitute personal advice and S3 has not taken into consideration your personal objectives, financial situation or needs. Please seek your own independent professional advice before making any financial investment decision. Those persons acting upon information contained in this article do so entirely at their own risk.

Conflicts of Interest Notice

S3 and its associated entities may hold investments in companies featured in its articles, including through being paid in the securities of the companies we provide commentary on. We disclose the securities held in relation to a particular company that we provide commentary on. Refer to our Disclosure Policy for information on our self-imposed trading blackouts, hold conditions and de-risking (sell conditions) which seek to mitigate against any potential conflicts of interest.

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The information contained in this article is current as at the publication date. At the time of publishing, the information contained in this article is based on sources which are available in the public domain that we consider to be reliable, and our own analysis of those sources. The views of the author may not reflect the views of the AFSL holder. Any decision by you to purchase securities in the companies featured in this article should be done so after you have sought your own independent professional advice regarding this information and made your own inquiries as to the validity of any information in this article.

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