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 MARKET REPORTS |
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Analyst report - shares
Wise-owl.com "Stock of the week": Austin Engineering
July 20, 2007
Tim Morris, Wise Owl analyst
Stock: Austin Engineering
Code: ANG
Recommendation: BUY
Sizzling commodity prices have been a bonanza for miners and oil and gas producers, who are now rushing to expand production and exploration to cash in on the booming conditions. Skills and equipment shortages are one of the key problems facing the resources industry, and companies that provide such support services for the sector are therefore in high demand.
Austin Engineering is a great example. It is a market leader growing quickly as demand for mining services booms. Austin Engineering offers both engineering services and manufacturing facilities in Brisbane, Perth and Mackay. Key products on offer include structural steel, mineral processing equipment, dump truck bodies, excavator buckets, materials handling equipment, machining services and lineboring services.
These offerings are far from glamorous, but they are the life blood of Australian mining companies. Without new equipment, or the ability to service existing equipment, production could not be expanded and existing operations would soon grind to a halt.
Like the miners, Austin Engineering also operates in an industry experiencing acute shortages of skilled labour. However, Austin is insulated from this threat as it owns the rights to an innovative robotic welding process that allows it to automate repetitive tasks. This is not only good news from a productivity point of view, it also reduces staffing needs and makes it easier for the company to hit tight deadlines.
Underpinning these competitive advantages and the company’s share price over the past year has been strong growth in the bottom line, with revenues rising 25% to $29.29m in the latest half year. Net profit soared 130% to $2.3m, however a large part of this was due to one off property sales.
There is plenty of growth opportunities remaining for Austin because the mining services industry shares in a lot of the upside potential of the commodities boom, without being exposed to the same amount of risk faced by the miners. A miner’s bottom line can be severely hurt by short term swings in commodity prices, however services companies such as Austin remain largely unaffected as long as mining activity continues.
Austin is also attractive from a valuation perspective, trading on a forward PE below 15, based on expected earnings for the current financial year. Earnings estimates for the following financial year increase Austin’s appeal even further, putting it on a FY08 PE of under 10.
In light of the company’s growth opportunities, solid fundamentals and attractive valuation, we expect its share price to continue to perform well as long as commodity prices remain high enough to stimulate additional exploration and production in the resources sector.
For the full report and further wise-owl.com recommendations and strategies, please click here for your free wise-owl.com trial.
Wise-owl.com is one of Australia's leading independent stockmarket research houses. It empowers all levels of investors and traders with education, advice, actionable strategies and risk management techniques. Its investment philosophy is based on a combination of quantitative, fundamental and technical analysis that has been proven over the years to produce very consistent and powerful returns.
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