Corporate Express Australia Limited - analysis updated with FY2007 results

[Excerpt from company analysis of Corporate Express Australia Limited dated 11 Feb 2008.]

Corporate Express Australia Limited released its FY2007 results with the annual report on 07 February 2008. As we expected in the previous review dated 16 January 2008, the latest NPAT is similar to that of FY2006. In this review we will revalue Corporate Express for an at par performance and increased EBIT, albeit with a higher debt.

In the previous review dated 16 January 2008 we determined the value of a Corporate Express share to be $8.72, which is greater than the current valuation of $8.18. The fall in valuation can be attributed to two factors: increased debt, and no change in outstanding shares. Whereas Corporate Express completed a buyback of $90m worth of shares, the buyback completed in April 2007 while the previous valuation was conducted in January 2008. Prior to the buyback Corporate Express had approximately 184m outstanding shares and 2m to be issued in lieu of options. Valuing Corporate Express using pre-buyback figures, we get a value of $8.31 for a debt-less share. Every one of the 184m outstanding shares carried a debt of $0.29. Deducting this debt from the debt-less value gives us a pre-buyback valuation of $8.02 per-share. Therefore, the year on year valuation of a Corporate Express share has increased by approximately 2%.

Corporate Express is a well managed business that is profitable but faces risk from competition, business spending, and high levels of short term debt. It does not have excellent growth prospects but has been able to grow organically and by acquisitions throughout the review period. Whereas it is a low margin operation, it has been able to maintain those margins in a tight band. Having established itself as a leading B2B supplier of office products, it offers a logistic and strength of brand barrier to competition.

On Monday, 11 February 2008 Corporate Express shares closed at $5.80 offering a moderate margin of safety to its valuation. For long-term competition and debt risks, and short-term spending risks associated with the economy in general, Corporate Express requires a higher margin of safety to fair value to be a candidate of purchase.