Ausgroup

Ausgroup: 4QFY13 net profit decimated 94% to A$0.5m y/y, as a result of lower gross margin (-1.5 ppts), a share of loss from a joint venture and increased finance costs. Revenue sank 22% to A$137.6m as the group was impacted by decreased activity in the resource sector. This was due to major resource companies scaling back capital expenditure in response to volatility in commodity prices as well as customer delays in awarding contracts in the oil and gas sector. For FY13, earnings crumbled 58% to A$9.7m while revenue dipped 8% to A$582.7m mainly from lower contributions from integrated services to A$160.1m (-50%). Notably, Ausgroup had a negative cash from operations of A$27m compared to A$37.1m achieved in the previous corresponding period, which could portend a potential cash raising in the year ahead, having just A$11.7m cash left in its books. Consequently, the decreased activity and cash drain resulted in a full cut in dividends for FY13, compared to the total dividend of 1¢ in FY12. Recently, Ausgroup made a sale-and-leaseback on its fabrication facility in Singapore for A$33m. The sale is expected to complete in Sep, subjected to conditions which include the approval by Jurong Town Corporation. Ausgroup expects revenue to continue on a slide due to the downturn in the iron ore and coal sector, as well as the delay in award of contracts within the oil & gas sector. The group intends to focus on lowering its cost structure, to extend its services in the oil & gas market and maintenance services. The group currently has order book of A$200m. At the last closing price of $0.35, Ausgroup trades at a steep 15.2x trailing P/E, almost double compared to its closest peer Civmec of 8.8x. Investors could expect a negative share price reaction for Ausgroup, due to the current wide valuation gap between the two companies.