Results Review, 14 November 2013
Ausgroup (AUSG SP)
Sell (Maintained)
Industrial - Engineering & Construction Market Cap: USD112m
Target Price: Price:
SGD0.24 SGD0.29 Macro Risks
Lowering TP On Dwindling Book Value
Growth Value
Ausgroup (AUSG SP) Price Close
Relative to Straits Times Index (RHS)
0.70 0.65
122
0.60
113
0.55
104
0.50
95
0.45
86
0.40
77
0.35
68
0.30
59
0.25
50
0.20 120
41
100
60
Sep-13
Jul-13
May-13
Mar-13
Jan-13
20
Nov-12
Vol m
40
Source: Bloomberg
Shareholders (%) Carson Barry Alfred Bain Bradley John Kenny Stuart Maxwell
0.74m/0.59m -17.2 -17.4 0.28 - 0.67 85
4.3 3.3 3.1
Shariah compliant
Loses 9% of book value in a single quarter. AusGroup (AUSG)’s AUD15.1m loss follows a gain on asset sales of AUD10.4m, without which the loss would have been higher at AUD25m (15% of book value). The recurrence of non-budgeted costs every quarter from the company’s contracts in hand leads us to believe that its orderbook as a whole is unprofitable. Low utilisation amid high overheads. The sharp slowdown in revenue (-44% q-o-q) was caused by a weak orderbook as well as AUSG’s inability to secure targeted projects. Meanwhile, its high labour costs mean that overheads cannot fall as quickly as revenue. The overall low utilisation of capital and labour inputs are likely to give rise to more losses in the upcoming quarters and further erode AUSG’s book value. In breach of loan covenants. AUSG disclosed that it has breached the EBITDA covenants under its banking facility agreements expiring in Jan 2014, and that the banks involved have formally advised it that they “reserve their rights”. The company said it is “currently in the process of reviewing options to replace these facilities”. We flag this issue today even though AUSG has forecast an improvement in its net cash position through 31 Dec 2013. If it does not secure sufficient work, the company will eventually need more working capital to maintain its workforce, and in CY14 and beyond, it may then need to borrow more – very likely at higher interest rates. The possibility of a cash crunch, while somewhat remote at this juncture, cannot be dismissed. Maintain SELL, with lower SGD0.24 TP. We lower our TP to SGD0.24, pegged to a 0.67x FY14F book value that is dwindling amid continuing losses.
Forecasts and Valuations
Jun-11
Jun-12
Jun-13
Jun-14F
Jun-15F
602
632
583
323
355
Reported net profit (AUDm)
12.4
23.3
9.7
(23.1)
2.0
Recurring net profit (AUDm)
12.4
23.3
9.7
(23.1)
2.0
186.4
88.1
(58.4)
(338.1)
0.03
0.05
0.02
(0.05)
0.00 0.001
Total turnover (AUDm)
Recurring net profit growth (%) Core EPS (AUD) DPS (AUD)
na
0.004
0.005
0.000
0.000
Lee Yue Jer +65 6232 3898
Dividend Yield (%)
1.7
1.9
0.0
0.0
[email protected]
Core P/E (x)
8.4
5.1
12.3
9.7
15.4
5.8
(14.3)
1.3
0.86
0.73
0.69
0.80
0.79
Return on average equity (%)
Jason Saw +65 6232 3871
[email protected]
P/B (x) P/CF (x) EV/EBITDA (x) Net debt to equity (%)
na 2.70 net cash
Our vs consensus EPS (%)
3
na
1.83
4.16
net cash
10.6
na
213 na 1.8 0.0
0.3 59.4
3 4.34 net cash 0.0
Source: Company data, OSK-DMG estimates
See important disclosures at the end of this report
3 . 3 0 . 1
0 0 . 1 0 0 AUSG reported a dismal AUD15.1m loss in 1Q14 that knocked off 9% of . 0 its book value in that quarter itself. In recognizing some additional 0 costs for its loss-making contracts, the company had breached its debt 0 covenants. It is now “reviewing options” to replace its existing borrowings. AUSG’s weak orderbook and high overheads are likely to give rise to more losses. Maintain SELL, with a lower SGD0.24 TP.
80
Avg Turnover (SGD/USD) Cons. Upside (%) Upside (%) 52-wk Price low/high (SGD) Free float (%)
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1
Ausgroup (AUSG SP) 14 November 2013
Additional Notes Figure 1: Quarterly results in review Figures in AUD'000 Revenue
Cost of sales
1Q13 4Q13 155,862 137,576
1Q14 77,235
q-o-q -44%
y-o-y -50%
(134,105) (123,132)
(98,125)
-20%
-27%
Gross profit Other income
21,757 582
14,444 1,556
(20,890) 10,404
-245% 569%
-196% 1688%
Other operating costs Administrative expenses
(5,822) (7,245)
(4,009) (6,865)
(5,685) (6,675)
42% -3%
-2% -8%
Marketing, distribution expenses Share of profit/(loss) from JV Profit from operations Finance costs Profit before tax Income tax expense Minority interest PATMI
(478) 1,081 9,875 (560) 9,315 (2,988)
(983) (1,005) 3,138 (2,370) 768 (243)
(722) 0 (23,568) (1,273) (24,841) 9,726
-27% n.m. -851% -46% -3335% -4102%
51% -100% -339% 127% -367% -426%
(15,115)
-2979%
-339%
Gross Margin EBITDA Margin Net Margin Source: OSK-DMG estimates
6,327
525
14.0% 8.1% 4.1%
10.5% 4.4% 0.4%
See important disclosures at the end of this report
Remarks Reduction in revenue across all divisions caused by the downturn in mining services and not securing targeted projects. Order book of AUD179m equivalent to only 2.3 quarters' work at current burn rate. Fell slower than revenue due to adjustments for additional costs being identified and accrued in terms of loss making contracts. 1Q14 profit realized on the sale of Singapore property of AU$8.6 million as well as profits on the sale of fixed assets and scaffolding of A$1.8 million. Significant q-o-q increase is worrying. Savings on staff costs offset by higher amortisation charges relating to the Group's new enterprise systems. One-off staff termination costs of AUD0.7m in 1Q14. Cloudbreak JV completed. No JV income going forward.
Tax writeback on losses. Larger-than-expected loss, equivalent to 9% of book value. Low order book and significant overheads likely to result in continuing losses.
-27.0% -28.2% -19.6%
2
Ausgroup (AUSG SP) 14 November 2013
Financial Exhibits Profit & Loss (AUDm)
Jun-11
Jun-12
Jun-13
Jun-14F
Total turnover
602
632
583
323
355
Cost of sales
(544)
(554)
(519)
(316)
(313)
Gross profit Gen & admin expenses
Jun-15F
58
78
63
6
42
(30)
(26)
(25)
(24)
(25)
Selling expenses
(3)
(3)
(3)
(3)
(3)
Other operating costs
(4)
(15)
(18)
(8)
(9)
Operating profit
21
35
18
(28)
5
Operating EBITDA
37
50
33
(12)
21
Depreciation of fixed assets
(15)
(14)
(13)
(13)
(14)
Amortisation of intangible assets
(2)
(1)
(3)
(3)
(3)
Operating EBIT
21
35
18
(28)
Net income from investments
(0)
4
1
-
5 -
Interest expense
(4)
(3)
(4)
(5)
Pre-tax profit
17
36
14
(33)
(2) 3
Taxation
(4)
(12)
(5)
10
(1)
Profit after tax & minorities
12
23
10
(23)
2
Reported net profit
12
23
10
(23)
2
Recurring net profit
12
23
10
(23)
2
Jun-15F
Source: Company data, OSK-DMG estimates
Cash flow (AUDm)
Jun-11
Jun-12
Jun-13
Jun-14F
Operating profit
21
35
18
(28)
5
Depreciation & amortisation
16
15
15
16
16
Change in working capital
(43)
(1)
(41)
21
Other operating cash flow
(3)
(2)
(4)
(12)
Operating cash flow
(8)
47
(12)
(3)
1
0
1
(1)
(4)
(3)
(4)
(5)
0
(7)
(12)
10
(1)
Cash flow from operations
(12)
37
(27)
1
44
Capex
(14)
(9)
(10)
(4)
(14)
9
(8)
(4)
22
-
Cash flow from investing activities
(5)
(17)
(14)
18
(14)
Dividends paid
(2)
(2)
(4)
-
-
(2)
-
-
-
-
(10)
-
-
-
Interest received Interest paid Tax paid
Other investing cash flow
Shares repurchased Proceeds from issue of shares
-
-
14
0
0
6
(16)
21
Other financing cash flow
(0)
4
Cash flow from financing activities
18
(14)
16
(10)
Cash at beginning of period
26
27
33
12
1
6
(26)
9
Forex effects
(1)
0
1
Implied cash at end of period
27
33
8
Increase in debt
Total cash generated
-
20
25 47 (2)
17 30 47
Source: Company data, OSK-DMG estimates
See important disclosures at the end of this report
3
Ausgroup (AUSG SP) 14 November 2013
Financial Exhibits Balance Sheet (AUDm) Total cash and equivalents
Jun-11
Jun-12
Jun-13
Jun-14F
Jun-15F
27
33
12
17
47
1
3
2
2
2
111
122
168
133
107
Inventories Accounts receivable Other current assets
-
1
19
0
0
Total current assets
138
159
201
152
156
Tangible fixed assets
102
96
76
63
63
Intangible assets
12
24
27
27
25
Total other assets
4
2
2
2
2
Total non-current assets
117
122
105
92
89
Total assets
256
281
306
244
245
Short-term debt
21
4
30
20
20
Accounts payable
69
72
84
52
52
Other current liabilities
22
33
13
12
12
112
109
127
84
Total long-term debt
1
2
Other liabilities
3
6
5
10
10
Total non-current liabilities
4
8
5
10
10
117
118
133
94
93
Share capital
62
64
64
64
64
Retained earnings reserve
78
99
104
81
83
Other reserves
(0)
1
5
5
5
Total current liabilities
Total liabilities
-
-
84 -
Shareholders' equity
139
164
173
150
152
Total equity
139
164
173
150
152
Total liabilities & equity
256
281
306
244
245
Source: Company data, OSK-DMG estimates
Key Ratios (AUD)
Jun-11
Jun-12
Jun-13
Jun-14F
Jun-15F
Revenue growth (%)
64.2
5.0
(7.8)
(44.6)
10.0
Operating profit growth (%)
48.5
66.4
(49.3)
(257.4)
0.0
Net profit growth (%)
424.0
88.1
(58.4)
(338.1)
0.0
EPS growth (%)
404.8
66.1
(58.9)
(337.9)
0.0
Bv per share growth (%)
0.9
17.6
5.5
(13.3)
1.3
Operating margin (%)
3.5
5.5
3.0
(8.7)
1.4
Net profit margin (%)
2.1
3.7
1.7
(7.2)
0.6
Return on average assets (%)
5.3
8.7
3.3
(8.4)
0.8
Return on average equity (%)
9.7
15.4
5.8
(14.3)
1.3
(3.3)
(16.3)
10.6
1.8
(17.7)
DPS
0.004
0.005
0.000
0.000
0.001
Recurrent cash flow per share
(0.03)
0.08
(0.06)
0.00
0.09
Net debt to equity (%)
Source: Company data, OSK-DMG estimates
See important disclosures at the end of this report
4
Ausgroup (AUSG SP) 14 November 2013
SWOT Analysis Healthy balance sheet
Weaker mining sector outlook given the slower China growth and lower iron ore prices
Widely-ranging skillset allows AUSG to bid for a broad scope of work
Delays in awarding of LNG-related contracts
The oil & gas sector in Australia is going strong, with high committed capex levels Large volume of liquefied natural gas (LNG)related contracts yet to be awarded Lack of pricing power
Low visibility of contract awards and work progress
P/E (x) vs EPS growth
P/BV (x) vs ROAE
90
1,500%
1.00
20%
80
1,167%
0.90
16%
70
833%
0.80
12%
60
500%
0.70
8%
0.60
4%
0.50
0%
0.40
-4%
0.30
-8%
50
167%
0.10
-16%
0
-1,500%
0.00
-20%
P/E (x) (lhs)
EPS growth (rhs)
Source: Company data, OSK-DMG estimates
Jan-13 P/B (x) (lhs)
Jan-15
-1,167%
Jan-14
-12%
10
Jan-12
0.20
Jan-11
-833%
Jan-15
20
Jan-14
-500%
Jan-13
30
Jan-12
-167%
Jan-11
40
Return on average equity (rhs)
Source: Company data, OSK-DMG estimates
Company Profile AusGroup is an energy and resources specialist which provides fabrication, precision machining, construction and integrated services to natural resource development companies in Australia.
See important disclosures at the end of this report
5
Ausgroup (AUSG SP) 14 November 2013
Recommendation Chart Price Close
0.6
0.30 0.26
0.66
0.33 0.33
0.35
0.73
Recommendations & Target Price
0.76
0.7
NR
0.8
0.5 0.4 0.3 0.2 0.1 Buy 0.0 Nov-08
Neutral
Sell
Feb-10
Trading Buy
May-11
Take Profit
Not Rated
Aug-12
Source: OSK-DMG estimates, Bloomberg Date
Recommendation
2013-10-14
Sell
Target Price Price 0.26
0.28
2013-08-29
Sell
0.30
0.33
2013-07-12
Sell
0.33
0.38
2013-07-05
Sell
0.33
0.38
2013-05-20
Sell
0.35
0.41
2013-05-14
Sell
0.35
0.42
2013-05-09
Buy
0.66
0.48
2013-05-03
Buy
0.66
0.46
2013-03-04
Buy
0.73
0.50
2013-02-15
Buy
0.73
0.57
Source : OSK-DMG estimates, Bloomberg
See important disclosures at the end of this report
6
RHB Guide to Investment Ratings DMG & Partners Research Guide to Investment Ratings Buy: Share price may exceed 10% over the next 12 months Trading Buy: Share may10% exceed over 12 themonths next 3 months, however longer-term outlook remains uncertain Buy: Share price mayprice exceed over15% the next Neutral: Buy: ShareShare price price may fall within the 15% rangeover of +/the next 12 months Trading may exceed the10% nextover 3 months, however longer-term outlook remains uncertain Take Profit: Target been attained. accumulate lower Neutral: Share priceprice may has fall within the rangeLook of +/-to10% over theatnext 12 levels months Sell: may fall has by more 10% over next 12 months Take Share Profit:price Target price beenthan attained. 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