Ausgroup

AusGrp: Strong set of results. 1Q13 net profit doubled YoY. AusGroup reported a very strong 1Q13 bottomline of A$6.3m, up 101% YoY. Note that the first quarter tends to be the weakest – 1Q11 and 1Q12 each contributed 16.2% and 13.5% of their respective full-year profits. Revenue was up 26%, with stronger Major Projects andFabrication segments contributing to the increase. Gross margin is up to 14.0% from 12.4% in 1Q12. The EBITDA margin is up to 8.1%from 3.6% in 1Q12, with improvements in Fabrication and Integrated Services segments. DMG expect Major Projects to deliver better margins in coming quarters.This has flowed to the bottom line – net margin was 4.1% against 2.5% in the comparable qtr. DMG note that AusGroup has met house expectations in achieving both topline growth and margin improvements, leading to a massive jump in profits. HOuse forecasts are unchanged and continue to expect a bottom line of A$31.4m, up 35% from FY12 record profits of A$23.3m. AusGroup is trading at extremely depressed valuations – FY13F P/E of 5.8x, P/B of 0.9x, and EV/EBITDA is a mere 2.4x. This is a company that is returning 20.5% ROIC and 17.5% ROEthis yr – such poor valuations are undeserved. House continue to value AusGroup at 9x FY13F EPS for a target price of $0.755, backed by aDCF-value of $1.14 at 11.5% WACC. Investors should ignore the recent share price volatility and focus on the fundamentals – batten the hatches and double down!