Profit upgrade likely to drive GR Engineering higher

//Profit upgrade likely to drive GR Engineering higher
Mining 1

It was only a month ago (July 8) that Market Wire suggested there was scope for GR Engineering’s share price to move even higher despite a recent strong run that had resulted in an ASX query.

At that point its shares had increased from 94.5 cents to hit a high of $1.15 in just over a week, representing a gain of circa 20%.

Management responded to the ASX query, saying it was unaware of any information that could be responsible for driving the share price rerating. Market Wire suggested the answer could be founded on the fact that the company appeared undervalued.

Not only was GR Engineering trading on a conservative PE multiple, but consensus forecasts for fiscal 2016 pointed to a full-year dividend of 10 cents, at that stage implying a yield of approximately 9%.

One month down the track and GR Engineering has been the beneficiary of a substantial share price rerating, hitting a four-year high of $1.45 on Monday.

However, after management announced on Tuesday morning that it was poised to substantially exceed pre-tax profit guidance provided when the company delivered its interim result in February there is the likelihood of another substantial rally.

Management now expects pre-tax profit for fiscal 2016 to be in a range between $24.5 million and $25.5 million, implying an outperformance of approximately 20% based on the mid-point of its revised guidance.

This news should underpin a further rerating.

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