Decmil Group Limited

DCG Details

Business Update: Decmil Group Limited (ASX: DCG) is an engineering & construction firm that offers a diversified range of services to the Australian resources and infrastructure industries. On 8 October 2021, the company has declared that it will hold its FY21 AGM on 11 November 2021.

Win of Contract: The company has recently announced that it has been awarded a $88.7 million contract by Major Road Projects Victoria. This is regarding the Barwon Heads Road Upgrade Work Package 1, between Settlement Road and Barwarre Road. The project is expected to commence on an immediate basis and is anticipated to be finalised in 2023.

FY21 Performance Overview:

• The company reported normalised revenue of ~$313 million for the year ended June 2021, reflecting a decrease of ~31% on the previous year, owing to reduced order book. COVID-19 also contributed to the decline as project delays shifted substantial amount of revenue from FY21 into FY22.
• However, DCG posted normalised EBITDA of $7.6 million, compared to a loss of $42.3 million in FY20.
• The statutory net loss stood at $11.5 million, impacted by $9.7 million of write-down of a contract position from a legacy dispute.
• It ended the period with net debt of $8.1 million as of 30 June 2021.

Trend in Revenue (Source: Analysis by Kalkine Group)

Key Risks: The company’s operations have been impacted by COVID-19 delays, which can lead to the cancellation of contracts and thus impact the profitability of the group.

Outlook: The company reported a strong order book of ~$570 million contracted and preferred as of 30 June 2021, comprising of ~$400 million for FY22. It has maintained a decent tender pipeline across the sectors and anticipates over ~$500 million revenue in FY22, with strong gross margin of over 8%.

Stock Recommendation:  As per ASX, the stock of DCG is trading below its average 52-weeks’ levels of $0.310-$0.780. The stock of DCG gave a negative return of ~8.33% in the past one month and a negative return of ~23.25% in the past three months. On a TTM basis, the stock of DCG is trading at an EV/Sales multiple of 0.3x, lower than the industry median (Industrials) of 2.0x, thus seems undervalued. Considering the valuation on TTM basis & current trading levels, turnaround in EBITDA performance, strong order book and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.325, as on 20 October 2021, 12:02 PM (GMT+10), Sydney, Eastern Australia.

Investors with a high-risk appetite should evaluate this stock given the technical support and resistance levels and consider associated risks of COVID-19, regulatory hurdles, and litigation cases.

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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