AUSGROUP, which is expected to report its 2Q results later this week, is looking at brightening prospects, according to remarks made by MD John Sheridan in an interview with The Edge newsmagazine.
Mining giants such as BHP Biliton and Rio Tinto, which are clients of AusGroup, are reportedly going to boost their capex to record figures this year to meet surging demand for raw materials.
“What we’re seeing is a really good improvement for project opportunities, which six months ago we just didn’t see,” Mr Sheridan said in the interview.
“We are strongly leveraged into the LNG and mineral resources space, particularly in Western Australia."
To analysts’ concern that given the amount of work available and starting up, Ausgroup seems to be conspicuously missing from tender lists, Mr Sheridan said: “There is a lot of work out there, but it depends at what stage those projects are in.”
Ausgroup’s specialty is the fabrication and manufacturing of mechanical parts used in construction work – and this sort of work comes towards the tail end of a project.
In the meantime, Mr Sheridan is tightening up Ausgroup’s internal controls to avoid ‘execution issues’ that have made analysts and investors wary of the stock.
In FY2009, for instance, the company took on two projects in Western Australia that were soon plagued with variations in costs nd claims owing to delays and the large size of the projects.
Mr Sheridan says Ausgroup is now more careful when bidding for new jobs, making sure the contracts’ terms and conditions are acceptable.
So, is Ausgroup’s fortunes turning around? CIMB Research, in a note in November, said it’s too early to call for a turn with execution issues and near-term low levels of tendering. CIMB has an underperform call and a 46-cent price target on the stock.
But Mr Sheridan anticipates strong improvement for the rest of the year. “We look forward to FY2012 and beyond, to strong demand for the services we’re providing.”
