Engenco Limited

EGN Details

Engenco Limited (ASX: EGN) provides broad technical services to customers who rely on heavy/complex plants and machinery.

Result Performance for the Year Ended 30 June 2021 (FY21)

• The revenue stood at $165.6 million in FY21, a decline of 7.0% YoY, primarily due to constrained trading conditions during the pandemic.
• Net profit before tax stood at $8.3 million in FY21, down 18.5% YoY, and net profit after tax after taking the progressive recognition of past tax losses stood at $12.0 million in FY21 to $13.4 million in FY20.
• As of 30 June 2021, the company had no debt and maintained undrawn bank facilities of $20 million.
• The company declared a fully franked final dividend of 1.5 cents per share for FY21 (FY20: 1.5 cents).

Key Snapshot (Source: Company Reports) 

Outlook
The company has continued to progress through its multi-year growth strategy to build a larger, more scalable platform closely aligned to its customers in the mining, transport, logistics, and defence industries. Although these sectors provide a high revenue stream and long-term contracts for the company, there is a good investment to improve the range of products and services and capitalise on growth opportunities.

The company has commenced marketing activities to build its Drivetrain Kalgoorlie business and broadening its drivetrain services. In FY22, this will include the launch of a new battery electric Kovatera vehicle, which has already registered significant interest.

Further, the company expects FY22 to be a year of stabilisation rather than material financial improvement. Nevertheless, it is cautiously optimistic about its future growth prospects as COVID-19 restrictions ease and the world enters a new economic era.

Key Risks:

• COVID-19: Uncertainties arising from the pandemic could impact the company’s financial health, as it has been impacted in FY21.
• Health and Safety Risk: The company’s business model leads to health risk as it deals in heavy machinery. Hence, the rising number of injuries could be a growth obstacle.

Stock Recommendation: 

The company is trading near to its 52-week low level of $0.440. The stock gave a negative return of ~10.28% and ~13.51% in the past six months and one year. On a TTM basis, EGN has an EV/EBITDA multiple of 12.7x against the industry median (Industrials) of 7.1x, indicating overvaluation.

Considering the facts above, current trading levels, valuation on TTM basis, and critical risks associated with the business, we recommend a ‘Sell’ rating on the stock at the current market price of $0.600 (Time: 1:05 PM (GMT+10), Sydney, Australia) as of 19^th October 2021.

Technical Chart:

Source: REFINITIV; Note: Purple Color Line Reflects RSI (14-Period)

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

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