Fixing Cactus is a priority, said CEO John Sheridan. Photo by Sim Kih
THE FIRST HALF of FY2010 (Jul-Dec 09) will be tough for AusGroup, but capital expenditure in the mineral resources sector is coming back, said AusGroup CEO John Sheridan.
He was speaking on Tuesday evening at the FY09 results briefing of the mineral resource infrastructure solutions provider held at Fullerton Hotel.
The hiccup in revenue growth in the current first half of FY10 is due to a slowdown in the number of mineral resource projects being developed and tendered during 2H09, which would have contributed to 1H10.
Tendering slowed to a virtual halt between Oct 2008 and Jun 2009, creating an "order book hole", according to OCBC Investment Research analyst Meenal Kumar.
The analyst upgraded her call on AusGroup from ‘Hold’ to ‘Buy’ yesterday, with fair value at 70 cents. This represents an upside of 17.6% based on the stock’s last close price of 59.5 cents.
Commodities and mining infrastructure demand had been affected by the credit crisis in 2008 but projects previously deferred are now being revived.
Over A$160 billion of major Australian resource projects in the pipeline for construction over the next 4 years are now back in full swing.
Of this, about A$6.1 billion of work is within Ausgroup’s scope.
Key earnings drivers include BHP Billiton's RGP5 project Woodside's Pluto LNG project and the Chevron-led GorgonLNG project, said the analyst.
AusGroup's FY09 earnings exceeded OCBC Investment Research estimates.
Key risks cited by the analyst include
1) deterioration in industry outlook;
2) margin squeeze due to competition;
3) project slippage; and
4) execution risk on MAS.
In a separate development, PetroChina announced this week it is buying 2.25 million tons of gas per year to be supplied from Australia’s Gorgon LNG project over the next 20 years.
The deal was signed with US oil major ExxonMobil and is yet another indicator of a strong infrastructure demand that is benefiting players like AusGroup.
Orders appear to be have come back for AusGroup, whose order book is currently A$403 million, compared with A$168 million when its 1H09 results were announced, and up 36% year-on-year.
Part of the increase was due to the inclusion of A$203 million worth of orders on the books of Moden Access Services (MAS), which AusGroup acquired in May.
MAS is headquartered in Perth and primarily provides access services for construction and maintenance programs on major projects in the resources, oil and gas and industrial sectors.
In addition to gaining MAS’ customers and being able to provide a wider range of services, AusGroup also gained access to the Thai market through the acquisition.
FY09 is up, but OCBC Investment Research expects 1H10 to be down.
FY09 revenues were A$478.2 million, up 26.2% year-on-year while net earnings were A$14.4 million, up 52.1%.
Gross margins improved by 2.2 percentage points to 14.9%. Margins tend to fluctuate due to uncertainty for the approval on variation orders.
In 4Q09, cost of sales decreased due to variation approvals obtained on several Australian projects.
Net margins were 4.6%, up 0.8 of a percentage point compared to FY08.
There was an impairment loss of A$4 million, of which A$2.7 million was from the impairment of goodwill on Ausgroup's Singapore subsidiary, Cactus Engineering.
The company is in a net cash position and declared a tax-exempt dividend of 0.64 Singapore cents per share payable on 6 Nov.
Related story: AUSGROUP: Gains foothold in LNG sector with A$120m landmark deal
