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 MARKET REPORTS |
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Analyst report - shares
Stock to watch in global resources that’s buoyed by good news
April 2, 2008
Tim Lincoln, managing director of Lincoln Indicators
Company: Ausenco Limited
Stock code: AAX
Current share price (01/04/08): $13.45
1 year high/low: $16.24/ $6.23
This week Tim Lincoln profiles Ausenco Limited (AAX), and illustrates the importance of paying attention to company news and announcements when considering a potential investment opportunity.
Ausenco Limited (AAX)
Operations
Ausenco Limited (AAX) is a provider of innovative and high quality engineering and project management services to the global resource industry. AAX’s range of services covers all aspects of project development from studies through to full project execution, operations and maintenance and beyond. AAX is currently undertaking global projects in more than 33 countries, covering the processing of minerals to produce gold, copper, nickel, silver, cobalt, lead, zinc, uranium and mineral sands.
Investment Opinion
AAX has performed exceptionally well over the past two reporting periods delivering an EPS growth rate of more than 186% p.a. and a one-year investor return of over 93% p.a.
The growth is expected to continue well into the future with the company boasting of a robust and deep project pipeline with significant upside potential. With a strong outlook and an undervalued position, AAX is an attractive investment option.
Financials
The company’s net operating profit before tax and significant items rose significantly from $17.895 million in the previous corresponding period to $51.478 million. This is the result of efficient utilisation of global engineering resources and expanded international presence. AAX posted record full year revenue of $368.3 million, 139% higher than FY06 figures on the back of strong project performance.
Valuation
AAX last closed at $13.12 at a PE of 26.9 times, which when compared to the sector average of 11.79 times, suggests the company is potentially overvalued at current prices. However, the PEG of 0.14 suggests that the premium being paid by the market on the company's earnings may be justified when the rate of EPS growth is considered.
Outlook
Looking forward, the outlook for AAX is positive with the management very confident that it can continue delivering sustainable earnings growth in 2008 and beyond despite volatility in financial markets. The company boasts of a robust and deep project pipeline that has significant upside potential. This upside stems from the company’s decision to broaden its process engineering services offerings and the continuing strong global demand for commodities and resource industry infrastructure.
Currently, the order book stands at US$2.9 billion installed capital value. Furthermore, the recent PSI acquisition will enable the company to better access the estimated US$5 billion worth of work in minerals pipeline transportation opportunities in the iron ore and base metal sectors. According to consensus analysts forecasts AAX is expected to report EPS of 70.30 cents for FY08, a 44.15% increase from FY07. This would see the company trading at a PE ratio of 18.66 times and a PEG of only 0.42, maintaining its undervalued position.
Why are company news and announcements so important?
Twice a year, all listed companies are required by law to report their annual and interim financial results to the ASX. By analysing and interpreting these results as soon as they are made publicly available, you can identify financially healthy companies exhibiting wonderful fundamentals before the market understands the full significance of their report.
Also, by paying attention to company announcements made directly to the ASX, you can stay up-to-date with the activities and performance details of stocks between annual and interim reports.
News and announcements can often have an immediate impact on a company’s share price. Good news such as profit upgrades or strategic acquisitions can have a positive impact on share price. Bad news such as profit downgrades or the resignation of a key executive can often have a negative impact on share price.
In our example of AAX above, the company reported outstanding financial results for the full year 2007. Plus, on 5 March 2008 the company announced the strategic acquisitions of Sandwell International and Vector Engineering to expand their global service offering and position the company for continued future growth.
This news has been perceived favourably by the market and sentiment on the stock remains positive. Should AAX achieve their 2008 earnings targets, the company is in an ideal position to deliver another period of strong share price appreciation to shareholders.
Tim Lincoln is Managing Director of Lincoln, Australia's premier fundamental analysis research house and fund manager offering intelligent sharemarket solutions for the conscientious investor. Click here to register to receive Star Gazing – Lincoln's Fortnightly Stock Tip.
More articles from this edition of CompareShares:
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Resident Trader: Good returns still possible
Analysis: Stock to watch in global resources that's buoyed by good news
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Expert Panel (forex): Hedging your portfolio against currency risk
Expert Panel (shares): What is the smallest and largest number of shares that you can buy?
Companies: Small firms weather Opes Prime fallout
Economics: Labour costs up significantly
Companies: Unclear if Opes clients will see money
Important information:
Author: Tim Lincoln. Lincoln Indicators Pty Ltd ACN 006 715 573 (Lincoln) AFSL 237740.
This information is current as at 27 March 2008.
Our advice and the advice of our Authorised Representatives (including advice in this communication) are prepared without taking into account your personal circumstances.
You should therefore consider the appropriateness of the advice in light of your objections, financial situation and needs, before acting on it. Where our advice relates to the acquisition or possible acquisition of a managed fund, you should obtain a copy of and consider the Product Disclosure Statement before making any decision. Investments can go up and down. Past performance is not a reliable indicator of future performance.
Our analysis and advice is impacted by AIFRS. Please refer to our website for further information: www.lincolnindicators.com.au/AIFRS. Testimonials are provided by third parties for information purposes only and are not intended to be financial product advice. They do not represent opinion or advice from Lincoln. The information provided may not be appropriate to your particular circumstances. You should consider obtaining your own independent advice before making any decision.
Lincoln, its director, employees and agents, makes no representation and gives no warranty as to the accuracy of this communication and does not accept any responsibility for any errors or inaccuracies in or omissions from this communication (whether negligent or otherwise) and shall not be liable for any loss or damage howsoever arising as a result of any person acting or refraining from acting in reliance on any information contained herein. No reader should rely on this communication as it does not purport to be comprehensive or to render advice. This disclaimer does not purport to exclude any warranties implied by law which may not be lawfully excluded.
Economic and other information taken into account in forming any opinions are subject to change and therefore opinions expressed as to future matters may no longer be reliable.
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