When it reported results for the first half of fiscal 2012 in February management of Cardno Ltd (ASX: CDD, OTC: COLDF) didn’t provide numeric guidance for the full fiscal year. The company did note that global market conditions continued to improve, but at a slower pace than anticipated when it reported full results for the prior fiscal year on Aug. 16, 2011.

It did point to a project pipeline of AUD535 million as of Dec. 31, 2011, and forecast “additional growth via organic expansion and acquisitions” that would “further strengthen core competencies.”

Cardno has acquired 30 companies during the past six years, establishing a solid track record of integrating new businesses. This record led to management’s Jun. 27, 2012, announcement that it expects to report net profit after tax (NPAT) of between AUD71 million and AUD74 million for the year ending Jun. 30, 2012, an increase of 21 percent to 26 percent over the AUD58 million the company earned in fiscal 2011.

The stock has been equally impressive generating a total return in US dollar terms of 53.78 percent since we added it to the AE Portfolio Conservative Holdings in November 2011 and 57.51 percent in calendar 2012.

Managing Director Andrew Buckley noted the continuing growth of Cardno’s business in variable market conditions. These results also confirm the soundness and actual success of Cardno’s growth strategy. Cardno’s fiscal 2012 results will rise due to the acquisition of Cardno TEC in October 2011, Cardno HRP in November 2011 and Cardno ATC in March 2012.

The company’s low debt level and strong balance sheet position it for more acquisition-led expansion and dividend growth.

Cardno will report full-year results on Aug. 14, 2012.

Following this update management announced two more acquisitions, of Bluefield, Virginia-based Marshall Miller & Associates Inc, a 180-person mining, energy and environmental consulting firm, and of EM-Assist Inc, a 150-person environmental services and compliance management firm headquartered near Sacramento, California.

MM&A is forecast to contribute revenue of around USD33 million and USD5.5 million in earnings before interest, taxation, depreciation and amortization (EBITDA) in fiscal 2013. The acquisition, which was completed Jul. 1, will immediately be accretive to net earnings.

Cardno will pay up to USD31 million for  MM&A, as around 10 percent  of the purchase price is subject to attainment of performance targets over the next 12 months, with an additional 9 percent deferred for 18 months.

The acquisition adds to Cardno’s expertise in mining engineering, mine reserve evaluation, oil and gas exploration, feasibility studies and due diligence services for mining and resource projects.

MM&A’s energy-related clients include the US Dept of Energy and other public entities in the US such as the Virginia Dept of Transportation as well as mining companies including BHP Billiton Ltd (ASX: BHP, NYSE: BHP) and transports including Norfolk Southern Corp (NYSE: NSC).

According to Managing Director Andrew Buckley, “With the addition of MM&A, Cardno can now offer clients specialist services in greenhouse gas inventorying, carbon sequestration and carbon off-set credit verification.” MM&A is currently engaged with the Dept of Energy on a carbon-capture and storage project in Russell County, Virginia, which will serve as an important template as Cardno begins to offer similar services to its clients in Australia and other jurisdictions that have or will enact carbon-limiting legislation.

MM&A’s key management will become Cardno shareholders and will remain active in the company. MM&A will be renamed Cardno MM&A.

The acquisitions will be funded by an approximate mix of 91 percent cash and 9 percent stock.

Cardno will pay up to USD14.25 million for EM-Assist, on similar terms as the MM&A deal; EM-Assist’s top personnel will become Cardno shareholders and will remain active in the company, and EM-Assist will become Cardno EM-Assist. This acquisition will be funded by an approximate mix of 97 percent cash and 3 percent shares.

EM-Assist, which specializes in environmental management and compliance services including air quality, hazardous materials, hazardous waste and environmental restoration and markets a portfolio of software products that complement its core service offerings, is expected to contribute around USD15 million in revenue and USD2.8 million in EBITDA in fiscal 2013. It too will be immediately accretive and became effective Jul. 1.

Companies Cardno acquires typically are paid for in a mix of cash and shares. This ensures vendors are incentivized to continue performing and is one of the reasons for historically high retention rates of acquired principals. And insiders own 45 percent of the company, which means management of the day-to-day business is aligned with shareholder interests and building wealth for the long term.

EM-Assist’s client base includes the US Air Force, the US Marine Corps and the US Army Corps of Engineers; it complements that of Cardno TEC, which was acquired in October 2011.

Cardno will continue to pursue smaller bolt-on acquisitions to build out service offering, particularly across environmental services. Management only targets complementary businesses with new geographical coverage or skills and capabilities. That means little overlap with existing businesses.

Co-branding, risk management and authority levels occur from Day 1. Co-branding lasts for three to five years before the acquired company’s name is dropped. Cardno gives acquired companies up to 18 months to get onto its group accounting systems.

Cardno has typically paid three to five times earnings before interest and taxation (EBIT) for small to medium-sized acquisitions and up to seven times for larger acquisitions, such as the recently completed deal with Louisiana-based ATC Associates. Management has said that the company is unlikely to pursue large deals in the short term given the recently completed takeover of ATC, for which it paid AUD112 million, funded in part through a fully underwritten placement of equity and a rights issue to existing shareholders. Cardno also made use of a debt facility that was restructured in December 2011, with its limit increased to AUD265 million and the term extended to July 2014.

ATC provides environmental, building sciences, geotechnical, construction materials testing and other services. The deal extended Cardno’s reach in the US. It brought 2,200 customers and 71 branches in 39 states to the fold.

Cardno, founded in Brisbane in 1945, is an infrastructure and environmental services company specializing “in the development and improvement of physical and social infrastructure for communities around the world,” with more than 7,000 professionals working out of 270 offices for more than 10,000 customers across all groups working on approximately 12,000 to 15,000 projects in 85 countries.

It provides consulting engineering services for the construction, infrastructure and natural resources industries in Australia/New Zealand and North America, the latter being its fastest growth market as well as accounting for the majority of its fiscal 2011 revenue. It also operates divisions focused on the UK and Africa as well as Asia Pacific.

Typical physical projects on which it consults include roads, rail, ports, pipelines, buildings and bridges. It also designs and manages projects for Western governments, including public sector reform programs in education, health care, the administration of justice and town planning.

Customers include a mix of private sector and public sector clients such as resource/energy companies (which accounted for 27 percent of fiscal 2011 revenue); federal, state and local government agencies (21 percent); contractors (17 percent); developers (7 percent) and aid agencies (4 percent).

The US Professional Services segment generated 53 percent of overall revenue in fiscal 2011, while Australian/New Zealand Professional Services generated 38 percent and International Development 9 percent. Geographically speaking the Americas generated 55 percent of revenue, Australia/New Zealand 38 percent, Asia Pacific 5 percent and the UK and Africa together produced 2 percent of sales.

Cardno has the flexibility to shift its focus between public and private sectors depending on demand. Government clients across federal, state and local levels represent about 30 percent of revenue. In addition, the number of services provided across multiple industries means Cardno can shift focus depending on regulatory regimes.

Take the the oil and gas industry, for example. Cardno’s revenues from resources and energy clients increased as a result of more and stricter regulatory requirements in the aftermath of BP Plc’s (London: BP/, NYSE: BP) Gulf of Mexico disaster, and the company has also seen higher sales due to water concerns arising from onshore shale gas exploration.

Many Western governments engage Cardno to develop and manage their foreign aid programs for developing countries, and Western governments rarely cut the absolute dollar amount of such aid programs. They simply cut the growth rate. And Western governments typically have no counterparty risk. Key customers include AusAID, USAID, EuropeAid, the World Bank, the Asian Development Bank and the Millenium Challenge Corporation.

Cardno targets small to medium-sized projects often ignored by competitors in the engineering-consulting industry. The company has thousands of projects in progress at any given time. Larger projects often carry greater risk, particularly if they’re lump-sum or fixed-price contracts that don’t take account of delays or other overruns.

Its large network of local offices also helps it keep an ear to the ground for such projects and to develop ongoing relationships that help drive repeat and crossover business. Cardno is approaching 300 offices in its global network, with many located on client sites. Advantages of on-site offices include little to no costs, and it makes it difficult for competitors get a foothold on the project if Cardno already has a physical presence on site and offers a large range of services.

The ability to cross-sell and execute is made possible by a diversified professional staff capable of fulfilling needs across both public and private sectors. Because of the breadth of services Cardno offers cross-selling in new markets will continue to be an important part of generating new revenue. Business units are actively engaging in cross-selling to increase returns for multiple business units and strengthen Cardno’s relationship with existing clients.

Educating clients on the breadth of services the company offers is a key method. For example, Cardno was initially involved in the design relocation, traffic management and landscape architecture aspects of the Gold Coast Rapid Transit light rail project in Queensland, Australia, but other business units able to secure structural engineering review and environmental services work.

Management’s long-term strategic initiatives are centered on expanding operations in countries with strong regulatory frameworks where regulations are enforced, including the US, Canada and Latin American countries such as Colombia, Ecuador, Peru and Chile. This is due to the fact that many of its services are driven by regulatory requirements–environmental and building regulations, for example.

Regulatory conditions are a key driver of demand for Cardno’s services. Its services are tailored to meet requirements, and governments around the world at the federal, state and local government level are placing increased regulatory burdens on companies, particularly in relation to the environment, building codes and permitting for large-scale development projects, infrastructure- as well as natural resource-related.

Cardno ENTRIX, for example, is the prime contractor delivering two Environmental Impact Statements (EIS) and Presidential Permits for international border crossing under the direction of the US Dept of State and the US Dept of Energy for the headline-making Keystone XL crude oil pipeline project.

Demand for Cardno’s services in Australia is still being driven by strong growth in Western Australia’s development of iron ore and natural gas projects, and it’s also been engaged to consult on electrical engineering work as part of this growth. It’s also seeing strong demand in central Queensland, where coal exploration and coal-seam gas exploitation are the primary drivers.

US markets are seeing strong demand for environmental services in oil and gas, though public infrastructure work remains flat. Management commented that US private sector land development is beginning to show signs of life.

Since listing on the Australian Securities Exchange in 2004 Cardno has delivered seven consecutive years of record statutory NPAT and earnings per share (EPS) growth and will make it an eighth on Aug. 14.

Cardno generates strong cash flow, its balance sheet is strong, with low overall debt, and it has successfully added new businesses and capabilities in recent years, amply demonstrated by management’s recent guidance for full-year fiscal 2012 earnings.

Numbers for the six months ended Dec. 31, 2011, were in line with market expectations and at the top end of guidance the company provided in January 2012. Cardno reported company-record NPAT of AUD36.1 million, 14 percent higher than the prior corresponding period. Revenue for the first half of fiscal 2012 was up 2.1 percent to AUD445.5 million, while basic EPS rose 5.6 percent to AUD0.3274.

EBITDA was up 12.3 percent to AUD65.5 million. Operating cash flow was up 18.7 percent from the prior corresponding period to AUD47.3 million. Cardno reported a debt-to-equity ratio of 42.5 percent and cash on hand of AUD80.4 million as of Dec. 31, 2011. The board approved and management declared an interim dividend of AUD0.18 per share, up from AUD0.17 from a year ago.

Based on management’s recent forecast and in light of its ability to profitably integrate new operations, we’re boosting our buy target by 15 percent.

Cardno is a buy under USD8.05 on the Australian Securities Exchange (ASX) using the symbol CDD or on the US over-the-counter (OTC) market using the symbol COLDF.

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. The final dividend in respect of fiscal 2012 will likely be declared on Aug. 14, 2012, when Cardno reports results, and be paid in mid-October.

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 six rate it a “buy” according to Bloomberg’s standardization of brokerage house recommendation terminology, while two rate it a “hold.” None of the brokerages covering Cardno recommend selling it. The average target price is AUD8.08, with a high of AUD8.50 and a low of AUD5.95.