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Ausdrill beats forecasts and announces acquisition
3 minute read
Name: Ausdrill Limited (ASX:ASL)
Market Capitalisation: $619 million
Share Price: $1.71
Diversified mining services company, Ausdrill has delivered an outstanding result with a 95.7% increase in net profit after tax to $61.1 million for the full year ended 30 June 2018.
This represents diluted earnings per share from continuing operations of 16.6 cents, well ahead of consensus forecasts of 14 cents per share, and implying a conservative PE multiple of circa 10. The full year dividend of 7 cents per share was in line with consensus forecasts.
The past performance of this product is not and should not be taken as an indication of future performance. Caution should be exercised in assessing past performance. This product, like all other financial products, is subject to market forces and unpredictable events that may adversely affect future performance.
$500 million in contract extensions and new work
Management attributed the much improved financial performance to its transformation and growth strategy.
Ausdrill noted that the strong result had been underpinned by its strong relationships with long-standing mining clients, combined with its success in winning new work.
Over the last 12 months Ausdrill has secured more than $500 million in contract extensions and new work.
To put this in perspective, total sales revenue in fiscal 2018 was $887 million, indicating that new work is equivalent to nearly 60% of last year’s income.
Based on the level of work currently in hand and expected contract renewals, Ausdrill is targeting 20% to 30% underlying profit growth for FY19, before taking into account the proposed acquisition of Barminco which was only announced this morning.
Of course numbers are speculative and investors should seek professional financial advice for further information if considering this stock for their portfolio.
Ausdrill has entered a trading halt while certain elements of the proposed acquisition are dealt with.
Acquisition would elevate Ausdrill to number two in Australia
The Barminco acquisiton is a major development for the company as it would see the combined group generating annualised revenue of circa $1.8 million across a more diverse range of customers and regions.
In the past, Ausdrill has been solely focused on the Australian and African markets with the latter having the potential to be uncertain.
Looking across Barminco’s operations, Australia accounted for 68% of the group’s revenues in fiscal 2018, and its main income generators by commodity are gold and nickel.
Aside from Australia and Africa, the company provides underground hard rock mining services in Egypt and India.
The combined entity will become Australia’s second largest mining services company.
Positioned for long-term growth
Ausdrill is of the view that competitive market conditions will persist, and margin pressure will continue in material parts of its business.
However, the Australian dollar gold price currently favours the Australian production-related mining industry and provides a platform for a stable level of activity in the near term.
Expenditure in gold exploration is growing in response to sustained periods of strong Australian Dollar gold prices.
Growth of the African businesses is expected to continue on the back of strong levels of tendering activity.
The outlook for the resources industry is expected to improve over the medium term in both Australia and Africa where Ausdrill has a long-established presence and local know-how.
Consequently, management sees Ausdrill as being in a strong position to grow in its key markets in the years ahead.