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Investor CentralAusGroup Limited - Will small contracts really lead to bigger wins?
5/2/2013 – Construction and fabrication company, AusGroup, has won a A$20 mln extension of the mega Gorgon gas project in Western Australia for pipe spools fabrication.
The order book now stands at A$280 mln with three contracts won since the start of January.
The Gorgon Project is one of the world’s largest natural gas projects and the single largest resource development in Australia’s history.
It is a joint venture in which Chevron, ExxonMobil and Shell are major shareholders.
OSK Research maintained its BUY call on AusGroup with a target price of $0.755.
The stock has risen 51% since it initiated coverage on AusGroup in September.
The analyst believes the turnaround in the company had gone unnoticed by the market, and expects more orders and an improvement in net margins.
Investor Central. Asian insights for global investors. We ask the tough questions of Asian companies which global investors need answers to.
1. Will small contracts help win bigger contracts?
AusGroup won three contracts in January worth A$13 mln, A$17 mln and A$20 mln.
But these are small dollar value contracts.
However, OSK DMG Research highlights that Australia has a common business practice to enter into a project with a small amount of work, and later as the quality of work is deemed satisfactory, more contracts will be awarded to the contractor.
Therefore that makes us wonder whether these small contracts will really bring big orders in future, and what value these will hold?
2. Are Major Projects expected to deliver better margins in coming quarters?
AusGroup’s gross margin in Q1 FY13 was 14% from 12.4% a year earlier.
The EBITDA margin was also up to 8.1% from 3.6% in Q1 FY12, with improvements in Fabrication and Integrated Services segments.
Therefore it makes us wonder whether the momentum in margin would continue.
3. When will it list on the Australian Securities Exchange?
AusGroup has been a hot stock after it announced, on September 24, plans for a listing on the Australian Securities Exchange.
This makes sense, because the majority of the company’s business is in Australia.
It will demerge all of its subsidiaries there into a separate company headed by wholly-owned AGC Australia and list it.
The idea is to keep AusGroup listed on the SGX and then to seek a listing of AGC on the ASX.
But we have not heard from the company since the time it announced its listing plan, and investors are looking to get an update.
We have sent these questions to the company to invite them for an on-camera interview, and/or seek their written response.
Sofar, we have not had a reply (which is why you are seeing this message).
Sources & further information
Statutory disclosure
OSK DMG Research Report
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