FY13 results disappoint. AUSG’s FY13 revenue was 8% lower than expectations at AUD582.7m, while profits tumbled 58% to AUD9.7m, coming in 9% below our forecast. If not for the sale of scaffolding in 4QFY13, AUSG would have reported a loss for the quarter.
Balance sheet weakened by negative operating cash flow. AUSG has suffered two consecutive quarters of receivables buildup, which dragged its balance sheet from net cash to a 10% net gearing. While the KML issue is showing signs of being resolved (change of CEO and some progress payments), the low cash holdings have prompted Management to omit giving dividend. We see a chance of an interim dividend when AUSG collects KML’s receivables in full and returns to net cash.
No escape from ugly macro picture. The minerals sector is slowing down. With most of the jobs in
its major projects segment completed, AUSG has little work left in this segment. While the oil & gas sector remains active, cost overruns have resulted in massive delays in order flow and cancellations of some projects. While the company’s AUD260m orderbook will provide work for two more quarters, the downtrend in revenue and margins - combined with high operating leverage - will continue to pressure its bottomline for a few more quarters.
Beware of light at the end of the tunnel. While the stock has retraced by 27% since our downgrade in May, there is still room to fall due to a the softer earnings and weakening AUD, which may also dilute AUSG’s value to SGD-based owners. Our SGD0.30 TP is pegged to 0.7x FY13 P/BV given that the cost of equity exceeds ROE. Risk-loving investors may buy into the ASX-listing angle, but we caution that the light at the end of the tunnel may be that from an oncoming train.
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