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Non-Tech : The SHAW Group -- Ignore unavailable to you. Want to Upgrade?

To: David Wiz who wrote (211)	1/8/1998 1:42:00 PM
From: Greg h2o	Read Replies (1) \| Respond to of 291

TO ALL: Jeffries report-- sorry about its appearance....don't have time to clean it up. Hope it's helpful. The Shaw Group Inc. NYSE: SGR - $21 1/4 Rating: Buy 52-Wk Range $26 3/8 - $12 1/2 FY Aug 1996 1997 1998E 1999E Shares Out (MM) 12.5 EPS* $0.94 $1.21 $1.85 $2.55 Float (MM) 8.5 P/E 22.6x 17.6x 11.5x 8.3x Average Daily Volume (Dec) (000) 37 CFPS* $1.30 $2.01 $2.60 $3.36 Institutional Ownership 50% P/CFPS 16.4x 10.6x 8.2x 6.3x Equity Market Cap (MM) $265.4 Book Value/Share $11.41 Cash & Equivalents (MM) $8.4 Price/Book Value 186% Total Debt (MM)* $108.4 Dividend Yield Nil * Pro forma for recent acquisition of Prospect. Fiscal First Quarter (November) Earnings In Line We maintain our Buy rating on The Shaw Group, Inc. (SGR) with a twelve-month price target of $36 per share based on 14x fiscal 1999 (August) EPS. We believe Shaw remains undervalued trading at 8.3x 1999E EPS based on expected earnings growth of 53% in fiscal 1998 and 38% in fiscal 1999. We believe Shaw will continue to benefit from strong demand in both domestic and international process and power markets. " " SGR reported fiscal first quarter (November) earnings per share of $0.38, in line with our estimate of $0.37 and the First Call consensus estimate of $0.36. We are maintaining our 1998 and 1999 EPS estimates of $1.85 and $2.55, respectively. " Revenues for the first quarter were a record $99.7 million, an increase of 32% versus the same period last year. International revenues were a record $41.1 million (41% of total). The electric power sector accounted for 35% of total revenues. " " Gross margin for 1Q98 declined to 18.3% versus 19.3% in 4Q97. The decline was due to three factors: (1) a higher percentage of lower-margin construction work; (2) lower margins at the recently acquired Prospect Industries unit; and (3) a decline in gross margin at Shaw's Alloy Piping Products (APP) unit, which manufactures stainless steel pipe fittings. However, the gross margin in Shaw's core fabrication business remained strong, while margins at APP are expected to return to historical levels by the end of 2Q98. We expect a gradual improvement in Shaw's gross margin driven by (1) improved pricing in core fabrication business; (2) greater contribution from the Reliance refinery project, Venezuelan projects and nuclear power projects, which command higher margins; and (3) increased profitability at APP. " Despite the lower gross margin, the operating margin in 1Q98 of 7.6% was close to the 7.7% level achieved in 4Q97, due to a decline in General & Administrative (G&A) Expenses as a percentage of sales to 10.7% in Q1-98 from 11.6% in 4Q97. Shaw expects a further decline in G&A to 10.2%-10.5% of sales beginning in the second quarter based on a $3.1 million reduction in overhead expenses at Prospect. " In 1Q98, Shaw benefited from a low tax rate of 24.4% versus our forecast of 33.5%. The lower-than-expected tax rate was primarily due to a favorable mix of foreign versus domestic earnings. Note that the reported taxes did not include any credits or other non-recurring items. We believe our assumption of a 33.5% tax rate for the remainder of fiscal 1998 and in fiscal 1999 could prove conservative. " Shaw's backlog as of November 30, 1997 was a record $271 million (excluding $13 million of joint venture backlog), up from $253 million as of August 31, 1997. The increase in backlog reflects $42 million in projects related to the Prospect acquisition. International projects account for 36% of Shaw's current backlog. " The Company experienced strong bookings of $123 million in 1Q98, which represents the second highest quarterly rate in the Company's history after the record $144 million of bookings in 4Q97. Bookings in the power sector during the quarter include a $12 million contract for Exxon's cogeneration power facility in Baton Rouge, Louisiana, a $9 million contract from GEC Alsthom for the Lingao I & II nuclear power plants in China, and two electric power projects with a total value of approximately $20 million, consisting of a 1,000 MW combined cycle power plant in Taiwan and four 600 MW oil-fired units in Saudi Arabia. In the process sector, the terms of its five-year pipe bending and fabrication services agreement with a major North American chemical customer were revised to increase the value of the contract to $112.5 million (over five years) from $15 million over five years. " During the quarter, Shaw completed the acquisition of certain assets of Prospect Industries for $15.8 million. Shaw expects to complete its previously announced acquisition of Cojafex B.V. for $9.5 million later this month. In addition, Shaw expects to sign a definitive agreement with the China Baoyuan Industry and Trade Company by April 1998 to establish joint venture ownership of a pipe fabrication facility in China. The facility is scheduled to be fully operational by August 1998. " Bidding activity remains strong in both international and domestic power and process markets. In the power sector, Shaw is experiencing strong activity in the emerging markets of China, Taiwan, Latin America and the Middle East. Further, demand for combined cycle power plants is extremely strong in the US and Western Europe. In the process sector, bidding activity continues to be robust in the US, Latin America and the Middle East. Other growth areas include the oil and gas pipeline market in Canada and Latin America, as well as the planned expansion of Shaw's construction business to Latin America. " As of November 30, Shaw had total debt of approximately $108 million, representing a debt-to-capitalization ratio of 43%. During the quarter, Shaw's debt increased by approximately $34 million, of which $25 million was related to the Prospect acquisition. Shaw recently increased the capacity of its revolving credit facility from $70 million to $100 million, of which approximately $65 million was outstanding as of November 30. The Company expects to reduce its debt level utilizing funds from the sale of non-core subsidiaries of Prospect (including CBP Engineering and Inflo Control Systems) as well as working capital reduction.