Decmil Group Limited

DCG Details

Award of EPC Contract: Decmil Group Limited (ASX: DCG) is engaged in the provision of engineering and construction services in the sectors of infrastructure, transport, resources, and energy. As per a recent update, the company has been awarded an EPC contract worth ~$23 million for delivering the civil plant works for the Crookwell 3 Wind Farm Project. The contracted revenue will be ~$21 million, with additional options worth a further ~$2 million.

Funding Agreement: As per a recent update, the company has agreed on $20 million in debt financing and $10 million in equity placement in order to fund its growth objectives and working capital requirements.

Dispute Conclusion: As per an update on 30 July 2021, the company has announced that it and the New Zealand Department of Corrections agreed to conclude their disputes with regards to the Rapid Deployment Prisons Project.  

FY21 Guidance Update:

• The company expects to report EBITDA from continuing operations to be between $7.5 million and $8 million in FY21, compared to the previously announced guidance range of $6 million to $10 million. It expects revenue to be between $300-$320 million in FY21.
• DCG expects to write-down $9.7 million to the contract position in regard to a legacy legal dispute but maintains that there will be no resultant negative cash impact.

Trend in Revenue (Source: Analysis by Kalkine Group)

Key Risks: The company’s line of business makes it prone to the risks of project execution. It has also been impacted by the onset of the COVID-19 pandemic with project deferrals.

Outlook: The impact of COVID-19 on the company’s operations has led to shifting the award of several contracts until FY22. It has preferred and contracted work in hand of ~$400 million in FY22, and anticipates annual revenue of over $500 million in FY22, owing to improved performance during the period.

Stock Recommendation:  As per a recent update, Thorney Opportunities Ltd and its associated entities has undergone a change of interests in the company and has increased its voting power to 19.72%. As per ASX, the stock of DCG is trading below its average 52-weeks’ levels of $0.345-$0.780. The stock of DCG gave a negative return of ~35.96% in the past one year and ~-23.15% in the past one month. On a TTM basis, the stock of DCG is trading at an EV/Sales multiple of 0.1x, lower than the industry average (Construction & Engineering) of 4.6x, implying undervaluation. Considering the current trading levels & valuation on TTM basis, contracts wins, optimistic guidance, conclusion of dispute and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.358 as on 05 August 2021, 10:27 AM (GMT+10), Sydney, Eastern Australia.

DCG Daily Technical Chart, Data Source: REFINITIV

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.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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