Sheridan_CIMB
Based in Perth, John Sheridan, CEO of AusGroup, told investors at CIMB yesterday that the company has a strong outlook. Photo by Leong Chan Teik

THE WAY AusGroup’s CEO sees it, the company is moving towards a sweet spot in the second half of calendar year 2011.

It is set to clinch more work and its profit margins will recover to pre-financial crisis levels, resulting in a healthier net profit.

On the first point, Mr John Sheridan said during a presentation at CIMB yesterday:

* AusGroup could be asked to tender A$3.2-3.7 billion worth of work in the next 12 months.

On a conservative basis, AusGroup is ‘reasonably certain’ of submitting formal tenders over the next 12 months for A$1.6-2 billion worth of work.

* AusGroup has submitted tenders for A$446 million worth of work as of Feb 11 this year, whose results have not been announced. Typically, AusGroup is successful in about 30% of its submissions.

The A$446 million worth of tenders is a sharp increase from the A$134 million as at end-June 2010.

“A rebuilding of our order book is expected in the second half of this financial year (ending June 30),” said Mr Sheridan.

The basis for the optimistic outlook for work includes annual investment in the oil and gas sector in Western Australia amounting to A$10-25 billion over the next 5 years.

In the mineral resources sector, the annual figure is projected to be A$4-5 billion.

fabrication_mfg
Among other things, AusGroup does fabrication and manufacturing for projects in the mineral resources sector. Photos: AusGroup

AusGroup derives revenue in roughly equal proportions from these two sectors, and primarily from Western Australia.

On the second point, Mr Sheridan said that net margins have been under pressure because of a lack of contracts secured during the global financial crisis and tight margins for the work that was secured because of stiff competition.

With global demand for oil and gas, iron ore and mineral resources shooting up, AusGroup is submitting tenders for the vast amount of work available based on healthier margins.

As a result, AusGroup expects to return to “more normal levels” of net margins of 4-5% in the second half of the current calendar year, which are much higher than the sub-2% reported last week for its financial result for the six months ended Dec 2010.

For the next quarterly result (for the period ending March 2011), however, revenue is expected to decrease slightly compared to 2Q2011 as several projects reach completion.

Earnings would still be weak due to lower business, timing-related profit recognition issues, and tight margins.

The turning point in its results could be in the 4Q of FY2011 and beyond.

CIMB analyst Yeo Zhi Bin, in a report on 14 Feb, has noted the improvements in business, saying: “With an expected improvement in margins, stronger order momentum and rationalising of fabrication division, we think that the turnaround has begun … but not yet at inflection point. However, we have already factored such an improvement in our earnings model. We prefer to see sustained margins expansion or sizeable orders before turning positive.”

He has an ‘underperform’ rating on the stock and a target price of 42 cents.


Recent stories:

AUSGROUP: Rides Western Australian boom but provisions dampen earnings


AUSGROUP: "Really good improvement in project opportunities..."

AUSGROUP'S CEO: Unfazed by challenges

 



Share Prices

Counter NameLastChange
AEM Holdings3.440-0.010
Avi-Tech Electronics0.280-
Best World2.4600.030
Broadway Ind0.114-
China Sunsine0.470-
DISA0.0030.001
Food Empire0.700-0.010
Fortress Minerals0.360-
Geo Energy Res0.3350.005
Golden Energy0.780-0.010
GSS Energy0.043-0.005
InnoTek0.500-0.005
ISDN Holdings0.570-
ISOTeam0.099-
IX Biopharma0.122-
Jiutian Chemical0.0820.001
KSH Holdings0.340-
Leader Env0.062-
Medtecs Intl0.154-0.004
Meta Health0.024-
Nordic Group0.475-
Oxley Holdings0.145-0.003
REX International0.220-0.005
Riverstone0.655-0.020
Sinostar PEC0.180-0.005
Southern Alliance Mining0.600-
Straco Corp.0.5150.005
Sunpower Group0.3750.005
The Trendlines0.095-
Totm Technologies0.110-0.003
UG Healthcare0.1840.002
Uni-Asia Group0.875-0.015
Wilmar Intl4.060-0.040
Yangzijiang Shipbldg1.250-

NextInsight RSS

rss_2 NextInsight - Latest News

Online Now

We have 432 guests and 4 members online

  • floridarumpf398