Duratec Limited

DUR Details

Secured New Contract: Duratec Limited (ASX: DUR) provides protection, remediation and refurbishment services to assets. Recently, the company secured a $13 million contract to manage the rehabilitation of former Defence and other Commonwealth infrastructure on six Sydney Harbour Federation Trust properties.

• The said contract underpins the continued expectation of strong revenue growth in 2HFY22 and ongoing in FY23.
• As a result of the contract, the company’s order book increased to a record $450 million and tendered works of $551 million within an overall $1.6 billion pipeline of tangible opportunities.

1HFY22 Financial and Operational Highlights:

• During 1HFY22, the company recorded a growth of 5.5% in revenue to $130.9 million and normalized EBITDA for the period amounted to $5.0 million, indicating a fall of 60.4% over pcp.
• As on 31 December 2021, DUR had a strong balance sheet with $36.2 million of cash and strong cash flows from operations of $2.1 million.
• DUR declared a fully franked interim dividend of 0.5 cents per share.

Revenue & EBITDA (Source: Analysis by Kalkine Group)

Key Risks: DUR’s operational and financial performance could be impacted by the changes in the pricing of the contract, which could impact its topline and bottom line. The company is exposed to a more complex regulatory environment; any failure in the non-compliance could lead to fines, penalties, etc.

Outlook: On the back of a strong order book, the company expects a result heavily skewed towards 2HFY22 financial performance, continuing into FY23. DUR is optimistic about Australian segment outlook, which will be supported by government IPP and corporate initiatives.

Stock Recommendation: The stock of DUR is currently trading above to its 52-week low level of $0.295, offering a decent opportunity for accumulation. The stock has been corrected by ~14.99% in the past six months. On a TTM basis, DUR has an EV/Sales multiple of 0.2x as compared to the industry median (Industrials) of 1.7x. Thus, it seems that the stock is undervalued at the current trading levels. Considering the valuation on a TTM basis, new contract, decent order book, strong balance sheet, decent liquidity position, decent outlook, current trading levels, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating at the closing price of $0.340, up by ~6.250% as on 02 March 2022. 

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

DUR Daily Technical Chart, Data Source: REFINITIV 

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

Note 2: Investment decision 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 Valuation has been achieved and subject to the factors discussed above.

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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