Ausgroup

Ausgroup: (S$0.042) Blew A$193m hole in FY16; financial health in critical condition
- Reported a whopping 4QFY16 net loss of A$99.5m and bringing FY16 loss to A$192.7m (FY15: A$6.2m net profit), undermined by massive impairment losses.
- While FY16 revenue rose 12.7%, gross margin shrank to 4.8% from 13.9% in FY15, reflecting intense price competition in the O&G services industry.
- Balance sheet has reached critical levels, net gearing at a dangerous 3.1x.
- Notably, $110m worth of notes will be expiring on 20 Oct and group is in urgent need of fresh funding given the rapid deterioration of equity base to A$50.9m from A$241.4m a year ago.
- At the current price, Ausgroup is valued at 0.58x P/B. With significant liquidity issues in the near-term and no light at the end of the tunnel, we believe the negatives may be just beginning.
- Separately, Ezion, which owns a 17.8% stake in AusGroup, has slashed its reported 2Q16 net profit to US$8.1m from US$19.8m in view of the dreadful results of its associate.