AE Portfolio Conservative Holding Cardno Ltd (ASX: CDD, OTC: COLDF) came under a great deal of selling pressure in mid-November after Managing Director Andrew Buckley announced at the company’s annual general meeting that management expects net profit after tax (NPAT) for the first half of fiscal 2013 to be in the range of AUD36 million to AUD40 million.

Cardno posted fiscal 2012 first-half NPAT of AUD36.1 million and fiscal 2012 second-half NPAT of AUD38 million. The first half of fiscal 2012 included an additional week.

The international infrastructure and environment services company got back on its horse, however, and remains on a solid long-term growth path.

This week Cardno announced the acquisition of San Francisco-baseed ChemRisk LLC, a human health and environmental risk consulting firm with approximately 100 employees.

Cardno management expects ChemRisk to contribute approximately USD20 million in revenue and USD6 million in earnings before interest, taxation, depreciation and amortization (EBITDA) over the next 12 months. The acquisition, which was effective as of Dec. 1, 2012, will be accretive to earnings per share in fiscal 2013.

Cardno will pay up to USD33 million for ChemRisk, including an earn-out and deferred payment. Approximately 11 percent of the purchase price is subject to the satisfaction of performance targets over the next 12 months, with an additional 9 percent deferred for 18 months.

As has been the practice with the many acquisitions Cardno has completed in recent years, ChemRisk’s key management will become Cardno shareholders and will remain in leadership positions with what will become Cardno ChemRisk.

Cardno funded the acquisition with an approximate mix of 64 percent cash, which was drawn from available cash and existing debt facilities, and 36 percent shares. Approximately 1.3 million shares will be issued at AUD6.05897 per. Shares to be issued as part of the deferred payment and earn-out will be based on the 10-day volume average weighted price at the time of payment.

ChemRisk extends Cardno’s consulting services practice into occupational health and safety, product sustainability, consumer product safety and contaminated site evaluations.

ChemRisk’s employees bring experience in toxicology, industrial hygiene, epidemiology, ecotoxicology, environmental sciences, medicine, engineering, statistical analysis and risk assessment, with a particular focus on understanding the hazards posed by chemicals in foods, soil, sediment, air, water and medical devices.

The acquisition will provide even more foundation for Cardno’s growth plan, which is based on leveraging existing relationships, being able to provide a diverse array of consulting services and winning all of their clients’ consulting business.

ChemRisk’s expertise complements Cardno’s infrastructure and environmental services and, in the words of Cardno Managing Director Andrew Buckley, “will enable Cardno to offer clients a holistic assessment of their projects and associated impacts on human health and the environment.”

Current ChemRisk clients include, among others, Johnson & Johnson (NYSE: JNJ), John Crane Inc, which designs, develops and manufactures mechanical seals, seal support systems, power transmission couplings and packing, Ford Motor Company (NYSE: F) and Union Carbide Corp.

Prior to Cardno’s guidance announcement management completed the acquisition of Sydney-based survey firm Hard & Forester. Hard & Foster, which has approximately 50 employees, is one of the largest surveying practices in New South Wales.

Cardno Hard & Forester will add revenue of around AUD9 million per year and will be accretive to earnings per share in fiscal 2013.

Cardno funded the deal with an approximate mix of 75 percent cash and 25 percent shares. Around 250,000 shares will be issued at AUD7.82769 per. The cash component will be funded from available reserves.

In September Cardno added Wellington, New Zealand-based water and wastewater design consultant Better Technical Options.

Cardno’s balance sheet remains strong following these deals, and the company is well placed to continue its strategy to grow organically and by further acquisitions. The company restructured its debt facilities in December 2011, with its limit increased to AUD265 million and the term extended to July 2014.

Cardno also raised AUD112 million in February 2012 through an oversubscribed equity offering.

We added Cardno to the Conservative Holdings on Nov. 11, 2011, when it closed at AUD5.19 in Australia. The stock closed at AUD8.56 on Aug. 21, 2012, making it one of our biggest winners.

But in the aftermath of its fiscal 2013 first-half guidance announcement the stock closed as low as AUD5.95, on Nov. 30. It’s bounced back somewhat but still trades just north of AUD6.

In a statement released by the company Mr. Buckley noted that market conditions were more difficult than expected resulting in “softer than anticipated” first-half performance. He also noted, however, that Cardno is “seeing healthy organic revenue growth in the order of 7 percent” but that this improving revenue “is not being reflected in our bottom line.”

Rising competition, pressure on fees for services and increasing costs “have restricted profit performance to date.” Mr. Buckley noted that “Australian conditions are especially difficult with all markets, except the gas projects, showing no growth or negative growth.”

Cardno was also impacted by Superstorm Sandy in the US Northeast. Although first-half results will likely reflect work stoppages, management expects additional work related to the clean-up to flow through in the second half of the fiscal year. Mr. Buckley also noted that the lead up to the US elections had caused some clients to delay projects.

Cardno has also incurred one-off restructuring charges in areas of the business where conditions have been particularly difficult and required significant reductions in overhead expenses.

Mr. Buckley pointed to Cardno’s 7 percent organic revenue growth and the increasing likelihood of stronger-than-expected GDP growth in North America in 2013 as positive signs for NPAT in the second half of fiscal 2013. Cardno’s fiscal 2012 revenue grew 16 percent from fiscal 2011 to AUD965.8 million.

He also reiterated the fact that Cardno has a “healthy pipeline” of potential acquisitions, an assertion that’s been backed by action in recent weeks.

The company has posted eight consecutive years of record profit and earnings per share growth since it listed on the Australian Securities Exchange (ASX) in 2004. The company posted a compound annual growth rate for revenue of 40.2 percent from fiscal 2004 through fiscal 2012, and similar NPAT growth of 42.1 percent.

Earnings per share have grown 20.2 percent, dividends per share by 16.7 percent during this time frame.

Cardno’s US acquisitions position it to benefit from what appears to be a more robust recovery there than in the consultant’s home market. In fact 54 percent of group revenue was generated in the US in fiscal 2012, compared to 39 percent from Australia and New Zealand and 5 percent from the Asia-Pacific region.

The acquisition of Cardno ATC in March 2012 is its biggest move in the States to date. A 1,600-person environmental consulting company specializing in building sciences, geotechnical engineering and construction materials testing, ATC is on track to generate revenue of USD130 and EBITDA of USD16 million per year.

In June 2012 Cardno completed the acquisition of EM- Assist, a 150-person environmental services and compliance management firm headquartered near Sacramento, California,

The expected revenue contribution is USD15 million, with USD2.8 million in EBITDA in fiscasl 2013. EM-Assist expanded Cardno’s reach into environmental work for the US Air Force and other Dept of Defense clients, at the same time adding more specialist skills in environmental compliance and monitoring.

EM-Assist complements the expertise brought by Cardno TEC and enables further cross-selling opportunities. Importantly at a time when environmental regulation is expected to increase, it bolsters Cardno’s ties to the public sector.

The October 2011 acquisition of Cardno TEC, a 330-person environmental and engineering consulting firm headquartered in Charlottesville, Virginia, should generate revenue of around USD52 million and EBITDA  of USD7.2 million annually. Cardno TEC’s backlog at acquisition was in excess of USD70 million, which was an all-time high.

Cardno may not post another record pace of growth. But it is still on track to grow. And it is in solid position to maintain the dividend level it established in fiscal 2012.

Cardno’s board declared a final dividend of AUD0.18 per share, which was paid Oct. 12, 2012. Last year’s final dividend was AUD0.166523; combined with the AUD0.18 interim dividend Cardno paid AUD0.36 in respect of fiscal 2012, up 5.9 percent from fiscal 2011.

The company has never cut its dividend since listing in 2004. There is AUD161 million outstanding on a loan coming due Jul. 31, 2014, though as of Jun. 30, 2012, there was more than AUD100 million in cash on the balance sheet.

Cardno closed at AUD7.80 on Monday, Nov. 19 on the ASX in Sydney. Following the guidance announcement on Tuesday, Nov. 20, the stock shed 19.2 percent to close at AUD6.30; it fell another 4.6 percent on Wednesday, Nov. 21, to close at AUD6.01, down 22.9 percent from its weekly closing high and 29.8 percent from the all-time closing high of AUD8.56 it established Aug. 21, 2012.

There’s no question the market is reacting swiftly and surely to any signs of disappointment in a fraught environment, where the real or perceived troubles of individual operating companies are blown up to match the apocalyptic scenarios of fiscal cliff dives being peddled all over financial infotainment TV.

In a recent presentation prepared for investors Cardno noted that “global market conditions are variable and improving slower than expected” but highlighted its view of an “improving” US economy and that “Australian economic growth” continues to be “bolstered by resources and energy.”

So the recent commentary on Australian gas projects is rather disappointing, given the outlook expressed on energy. But overall work in hand as of Jun. 30 was AUD671 million.

And Cardno’s diversity, focus on relatively strong markets and the impact of recent acquisitions provide the ability to ride out difficult conditions.

Now yielding 5.8 percent, Cardno is a buy under USD7.50 on the ASX, which equates to AUD7.11 based on exchange rates prevailing as of Dec. 12, using the symbol CDD.

Cardno also trades on the US over-the-counter (OTC) exchange under the symbol COLDF. Buy Cardno in the US under USD7.50.

As has been clearly demonstrated, Cardno is at risk to a slowing Australian economy, where it still generates significant fee revenue. Recent indicators suggest sluggishness at home will persist into calendar 2013 but that efforts to stimulate the Chinese economy are having positive knock-on effects Down Under.

It will take time for China’s momentum to gather and for it to transfer in force to Australia. And though the turmoil in Europe seems to be easing a bit, there remain significant downside risks for the global economy.

At the same time, however, what is still the world’s biggest economy, the US, is showing signs of establishing a real recovery. Fiscal and monetary policy remain outsize factors, but job growth has been solid and other economic indicators–other than confidence measures that regrettably reflect too much of our sclerotic politics–suggest 2013 could surprise to the upside.

Cardno’s efforts to diversify its professional offerings and the geographic reach of same have positioned it well to weather a downturn in Australia. The recent guidance for the first half of fiscal 2013 was disappointing, but it must be considered in light of what’s been an incredible record of revenue, profit and dividend growth.

There will be some slowing of Cardno’s pace of expansion. But management has been consistently conservative with its dividend policy; barring a real disaster along the lines of the 2007-09 global meltdown the payout is safe at these levels. Based on Cardno’s track record modest growth is not out of the question.

Cardno’s fiscal year runs from Jul. 1 to Jun. 30. 30. The company reports full financial and operating results twice a year; it typically posts first-half results in mid-February, with full fiscal year numbers out in mid-August.

Interim dividends are usually declared in February along with first-half results. Final dividends are usually declared in August along with full fiscal-year results.

The most recent interim dividend of AUD0.18 per share was declared Feb. 14, 2012, and was paid Apr. 4, 2012, to shareholders of record as of Mar. 21, 2012. Shares traded “ex-dividend” on this declaration as of Mar. 15, 2012.

Cardno declared a final dividend in respect of fiscal 2012 of AUD0.18 on Aug. 14, 2012, when it announced full-year results. This dividend, which represented an 8.1 percent increase over the final fiscal 2011 dividend, was paid Oct. 12 to shareholders of record on Sept. 14.

Dividends paid by Cardno are “qualified” for US tax purposes. The Australian government withholds 15 percent, based on the US-Australia tax treaty on double taxation. The two countries have not taken the step of eliminating withholding from dividends paid in respect of shares held in a US IRA, as have the US and Canada.

Among the analysts who cover the stock five rate it a “buy” according to Bloomberg’s standardization of brokerage house recommendation terminology, while five rate it a “hold.” None of the brokerages covering Cardno recommend selling it.

The average 12-month target price among the seven analysts that provide a figure is AUD7.23, with a high of AUD8.28 and a low of AUD5.95. Based on Cardno’s Dec. 12 closing price on the ASX of AUD6.18 and the average 12-month target among analysts the implied 12-month upside is 17 percent.