AusGroup released its financials for 2Q15, posting operating profit of A$3.2m, positive performance comes from the maintenance services. However, net profit was A$1.1m, 53.3% down yoy due to a tax relief item in 2Q14. In light of the challenging environment for oil and gas service providers now, AusGroup has engaged in a restructuring and acquisition program, cutting spare workforce from current personnel rolls and expanding into new business segments. The acquiring of Ezions marine supply base (MSB) business resulted in an expansion of AusGroups PPE, with the financing required pushing AusGroups net gearing to 40% from 11% in 1Q15.
AusGroup is an engineering and logistics service provider for mineral resources as well as oil and gas markets. AusGroup services include fabrication, manufacturing and maintenance support, and has now expanded into marine service provision since November 2014.
Key takeaway from results briefing
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Fabrication and manufacturing revenue contribution fell to 24% in 2Q15 compared to 32% in 2Q14, in line with continued weakness in Australian oil and gas and resources sector.
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Order intake remains strong, with contribution coming primarily from maintenance business. Order intake stands at A$143.3m in 2Q15 compared to total FY14 order intake of A$421.4m.
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Ezions MSB acquisition has not yet resulted in revenue contributions for AusGroup. Transition is still in place, and will not be seen until mid-2015. New construction of a 30 million litre fuel tank at Port Melville represents a new business segment for AusGroup, and aims to take advantage of the acquired Ezion assets.
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AusGroups risk profile is increasing after surged its net gearing to 40.4%, but this is natural in light of the acquisition of Ezions MSB. Further increases in working capital requirements (negative operating cash flow of A$25.6m in 2Q15) also stressing its financing requirements.
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Company seems to have broadly stabilised following the restructuring that occurred in 2013, which saw significant management changes amidst a large fall in revenue.
Valuation
AusGroup trades at 9x consensus FY16 PER, lower than 3-year average of 13x. Limited upside for AusGroup exists in the current environment, with limited enthusiasm for energy and resources investment Potential benefits exist from the marine segment, but how the plan is shaping up will not be seen till after the end of its financial year.