Ausgroup

Ausgroup: AusGroup announced that it: i) has repaid all senior bank debt; ii) is attempting to limit the Bank's security over the Group's assets to the cash that remains on deposit; iii) is in discussion with a number of parties to provide the Group with working capital and contract bonding facilities; and iv) it has AUD219m of work in hand. This is a negative development - the banks have pulled their lines, and as of 1Q14 AusGroup had only AUD7m in cash-ex-seniordebt on the balance sheet of which AUD9m were bank overdrafts. In other words, AusGroup is at serious risk of insolvency today. OSK DMG believe that the quid pro quo for working capital and contract bonding facilities will be lower accepted margins if the parties are customers or higher interest rates to financial lenders, which deepen the gloom on AusGroup's future margins and will delay its return to profitability. The outlook for AusGroup is turning dire. OSK DMG maintains its SELL with a lowered TP of $0.21, based on 0.65x FY14F P/B.