AusGroup is an attractive value play, with its current price yet to reflect its growth potential, AmFraser says, viewing the stock as cheap trading at only 6.5x PER vs its peers’ average 13.6x.
It says AusGroup is a turnaround story, posting a strong recovery from its FY10 earnings trough, with strong net margin improvements. The company is poised to benefit from huge capex in Australia’s mining sector, with good orderbook growth trends, it says, noting the orderbook was A$420 million ($537 million) at fiscal-2H12.
“We expect orderbook to grow in tandem with Australia’s mining outlook backed by strong capex flows, particularly in LNG and oil and gas in the longer term. Committed projects in the iron ore and coal space should drive demand for AusGroup’s services in the shorter term.”
It tips potential 18%-20% earnings CAGR to FY16. AmFraser says AusGroup’s main risks are from execution, Australia’s rising labor costs and a possible sustained fall in commodity prices. AmFraser doesn’t rate the stock. The stock is up 22% at $0.50.