Decmil Group Limited (DCG) has reported a strong position with increase in revenue, EBITDA and NPAT in FY14. The Company delivered a revenue of $617.7 million (up by 17%) and profit of $49.7 million reflecting another year of gains. Though the revenue increased by $88.9 million but the Company did witness reduction in margins to some extent owing to a declining resource sector trend and smaller margins being proffered by projects associated with government work in infrastructure and civil. EBITDA increased by 10% to $78.2m. Earnings per share was a record 29.50 cents and based on a 44% payout ratio. The net cash position was maintained with $59.3 million cash on hand and the Company is currently debt free with all senior debt repaid. DCG has exemplified a high degree of revenue visibility with c.$400m work in hand for FY15 and strong tender pipeline.
Five Year Trend for NPAT and EPS (Source – Company Reports)
Both the segments, namely, Construction and Engineering, and Accommodation Services performed well. DCG has won work in new areas including civil roads and bridges; and new sectors including Government. The performance has been strengthened by contracts with the Department of Immigration and Border Protection, Atlas Iron, Shell, Roy Hill, QGC, Rio Tinto and Chevron. The Company’s flagship accommodation village, Homeground Gladstone, achieved steady occupancy, averaging 79% during FY14.
Financial Performance (Source – Company Reports)
As mentioned above, DCG’s department of immigration and border protection contracts is progressing well. The Company has unified Eastcoast Development Engineering and VDM, and has expanded capability including roads and bridges.
An overview of DCG’s performance in Construction and Engineering segment reveals revenue increase by $71.2m (15%) to $560.5m. The Company recently reported that Manus Island contracts for DIBP are progressing well. The Lombrum Project (Manus Island, PNG) has a value of $147 Million and is expected to be complete by April 2015. The Lorengau Project (Manus Island, PNG) values $137 Million. Other projects including Fuel Tanks (Pilbara, WA) valuing $37.5 Million, Port Buildings (Pilbara, WA) valuing $15 Million, and Rail Buildings (Pilbara, WA) valuing $58 Million are expected to be completed in 2015.
Fuel Tanks (Source – Company Reports)
Projects with Rio Tinto including West Angelas (Pilbara, WA) and Cape Lambert (Pilbara, WA) have been on track. Similarly, other projects include QGC Wellhead Installation Services and Origin Spring Gully PreAssembled Units.
Construction and Engineering by Sector (Source – Company Reports) DCG has been awarded a number of non-process infrastructure contracts with Tier 1 resources clients. Further, the Company aims to continue to explore opportunities with Government, civils and upstream LNG sector in QLD, and believes that the margins would rebound to long-term sustainable levels.
For the Accommodation Services segment, strong occupancy contributed to the solid result for FY14 with EBITDA rising up to 89% to $30.3m.
Accommodation Services Performance (Source – Company Reports)
The Company expects to capture long term tenancy as the Curtis Island LNG and WICET projects progress from the construction to operations and maintenance phases. DCG also emphasizes on organic growth, and intends to capitalize on strong credentials to grow business in new states and explore opportunities in less mature markets such as fuel, Coal Seam Gas and small civil works. It also aims to expand geographically by targeting further offshore opportunities in PNG, East Timor and New Zealand.
Recently, the Company advised that as part of a capital management program, it intends to implement an on market share buy-back for up to 10% of the Company’s fully paid ordinary shares.
Decmil Daily Chart (Source - Thomson Reuters)
Another announcement of importance has been about the acquisition of the business assets of SAS Telecom which will provide DCG with direct access into telecommunications infrastructure while expanding the Company’s operational service offering.
All-in-all the play looks interesting, and accordingly, we reinstate a BUY recommendation for this stock at the current price of $1.315.
Note - The following report was covered in KAlkine Daily on 12/12/2014.
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