Acrow Formwork’s (ASX: ACF) share price is set to continue its long-term uptrend in 2023 

Marc Kennis Marc Kennis, December 1, 2022

Written on 1 December 2022 

 

Acrow Formwork And Construction Services (ASX: ACF) provides scaffolding and formwork solutions as well as engineering services, screening systems and labour supply in Australia. The company offers its services to major construction and infrastructure projects and is mainly focused on the markets in New South Wales and Victoria.  

 

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Acrow Formwork was established in 1936 in the UK and started its business in the Australian construction industry in 1950, leaving it with an extensive experience in the Australian market. To learn more about Acrow’s business and its history, Stocks Down Under subscribers can read our article about the company here. 

 

Acrow’s share price is on a long-term uptrend 

Acrow Formwork’s share price has been on a long-term uptrend since the Corona Crash as the company’s revenue and earnings have been consistently increasing throughout the period. The share price broke its all-time high level of 56 cents in November after the company reiterated its strong earnings guidance of 9 to 9.4 cents per share. 

We think Acrow’s stock is attractive from both technical and fundamental points of view and has a high chance of further price appreciation.  

 

Acrow Formwork

Acrow Formwork, Weekly Chart in Semi-log Scale (Source: Metastock)

 

A beneficiary of an increased infrastructure budget 

Acrow has been a beneficiary of the ongoing infrastructure spending in Australia as it produces some of the most essential formwork and safety products used in the construction industry. According to the Parliament of Australia website, the Government is committed to a record $120bn investment in the country’s infrastructure over the next 10 years. And the focus of the budget would be mainly on transport infrastructure. 

 

An established, but still fast-growing business 

Acrow, with more than 70 years of operations in Australia’s construction industry, is well-positioned to benefit from the elevated spending on construction. Over the last five years, Acrow’s annual revenue and earnings have grown by compounded annual growth rates of 49% and 57%, respectively, in part due to acquisitions. 

Acrow Formwork has guided to FY23 earnings per share in a range of 9.0 to 9.4 cents. The strong FY23 earnings guidance came on the back of significant revenue growth in the first three months to September 2022. It reported 1Q23 revenue growth of 32% compared with the same period last year. In the meantime, it expects higher margins as it has increased hire rates across its commercial scaffold business. 

 

Very attractive valuation 

Using the mid-point of Acrow’s FY23 earnings guidance of 9.2 cents per share, Acrow’s stock is trading at a forward P/E multiple of 4.8x and an EV/EBITDA multiple of 4.6x. These valuation multiples seem extremely attractive as the two analysts covering the company expect circa 10% of further earnings growth for FY24 and FY25. 

 

Even more attractive dividend yield 

Acrow Formwork has a policy of paying out 30 to 50 percent of its operating cash flow in dividends. The company paid out 2.7 cents of its FY22 earnings per share of 6 cents in fully franked dividends, which gave it a payout ratio of 45%. Using a more modest payout ratio of 40% and the expected earnings per share of 9.2 cents, we can expect a fully franked dividend payout of about 3.7 cents in FY23. This gives Acrow a dividend yield of 6.6% at the current share price of 56.5 cents. 

 

How to play Acrow Formwork’s stock? 

Acrow’s breakout of its all-time high level of 56 cents in November is an indication of bullish sentiment on the stock. As such, we think Acrow’s share price can grow alongside its long-term uptrend line (the blue trendline on the chart) for the foreseeable future as the company enjoys tailwinds from the Government’s infrastructure spending to reach 80 cents and higher in the next 12 to 18 months. 

We recommend using 52 cents as a stop-loss level. A confirmed break below 52 cents would be an indication that the uptrend is broken and it significantly reduces the chances of further share price appreciation in the short term, from a technical analysis point of view. 

 

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Acrow Formwork’s (ASX: ACF) share price is set to continue its long-term uptrend in 2023  1

 

 

Frequently Asked Questions about Acrow Formwork

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