BROKERS’ DIGEST

Not fully out of the woods, but turning around

Prospects in AusGroup, an Australia-based integrated solutions provider, may finally be “turning around”, even if it isn’t “fully out of the woods yet”, says KGI Research analyst Joel Ng in an unrated report.

The group saw a “challenging” FY2020 ended June 2020 as it posted a full-year loss of A$59.5 million ($60.8 million). The loss came amid reduced work on their facilities, as well as impairments of PPE and intangible assets.

However, Ng expects the group’s prospects to see better days due to faster-than-expected growth in the Australian economy, which is estimated to grow by 4.4% and 3.2% in 2021 and 202 respectively, according to Bloomberg consensus’ figures.

“As a major commodity exporter, the country also stands to benefit if the global economy picks up. Most recently, the International Monetary Fund (IMF) is projecting a stronger recovery for the global economy, and now expects the world economy to grow by 6.0% in 2021 and 4.4% in 2022, compared to its previous forecast of 5.5% and 4.2% respectively,” Ng writes.

In addition, the completion of new LNG

AusGroup

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KGI Research “unrated” construction projects and continued “significant investments” in the resources sector are positive for AusGroup’s prospects in the next 12 to 24 months, he adds.

The group also scored a 10-year maintenance contract with Chevron Australia on March 22, which is estimated to provide revenue of A$100 million per annum.

Ng adds that other project-related works should start to resume in 2HFY2021 as clients have largely delayed their projects since 2020, according to AusGroup’s management.

He also expects earnings to recover going forward, with “upside potential” as the group secures more projects and maintenance contracts.

Despite the optimism on the group’s prospects, Ng is slightly cautious as he notes a “key overhang over the value of its port and marine business, which accounted for 47% of non-current assets and 26% of total assets as at Dec 31, 2020”.

“We will have to closely monitor the commercialisation of its port and marine business given that its auditors issued a disclaimer of opinion on its FY2020 financial statements. This was mainly due to PPE and intangible assets worth A$38.7 million related to the port and marine business”.