AUSGROUP HAS posted a revenue increase of 12% to A$306.8 million for H1FY2013 on the back of increased activity for oil & gas projects.
> Net profit is up 9.8% at AU$9.1 million.
> Cash and cash equivalents as at 31 December 2012 totaled A$31.1 million.
> Order book as at 14 February 2013 totaled A$308 million.
For more information, read its 1HFY2013 results media release here.
”We expect earnings growth to be driven by the oil & gas sector for the next few quarters,” said CEO Laurie Barlow during the company’s investor briefing at Mandarin Oriental Hotel on Thu.
On 15 Feb, OSK-DMG analyst Lee Yue Jer said in his research report that AusGroup's record tender book of A$4.5 billion and healthy order book of A$308 million are indicators of better results in 2HFY2013 and FY2014.
Mr Lee maintained his ‘Buy’ call on AusGroup with a target price of 73 cents. This translates into an upside of 29% based on its close price of 56.5 cents on Friday.
The analyst had adjusted his target price downward from 75.5 cents previously as large contract wins from major oil & gas projects like the Gorgon LNG project had yet to be awarded.
Below is a summary of questions raised at the briefing and the replies made by CEO Laurie Barlow and CFO Anthony Hardwick, who was also at the meeting.
Q: Can you provide a breakdown of your order book by projects or operational divisions?
In the mining sector, major projects contributed 48% in 1HFY2013. This is mainly structural mechanical piping business.
Integrated services contributed 30%. This is mainly scaffolding, insulation and painting business for the oil and gas sector.
Fabrication and manufacturing contributed 22%. This is mainly for the oil and gas sector.
Q: When do you expect the large orders to be placed?
In the oil & gas sector, it takes 3 to 6 months from bidding to securing a contract.
Using the Wheatstone project as an illustration of project flow, we are now bidding for scaffolding jobs, which take place when the full swing for structural mechanical piping works kick in.
Q: You are in a position to bid for large LNG projects. How does this affect your margins?
Large LNG projects give reasonably good margins, at levels consistent with our other projects. This is because there are typically only two or three bids from competing contractors for such projects.
At the beginning of each project, we expect margins to be sustained as work is based on lump sum rates.
Toward the end of the project, when we go into reimbursable scheduled rates, we end up with lower margins.
Q: How is your bid for the Gorgon maintenance project progressing?
The Gorgon maintenance project is not out for tender yet. We are on the bid list for this contract.
It will be a massive 5-year contract that will be keenly sought after. I believe the Gorgon project will be in operation only in 2016 or 2017, and that’s when we expect to start generating revenue there.
Gorgon (LNG), Wheatstone (LNG), Ichthys (LNG), APLNG, GLNG and QCLNG all need maintenance work amounting to hundreds of millions of dollars per year. But these mega projects are not starting in the near term. We are now ‘practicing’ on the Apache project.
To prepare for these massive projects, we need to invest a lot more in growing our maintenance business.