Latest Research

Pacific Energy (PEA) - Waiting On Pipeline Conversion

Pacific Energy LogoPEA’s FY17 result of $40m EBITDA was in-line with guidance and forecasts. Growth into FY18 is underpinned by current contracts in hand, and the Company has given guidance for FY18 EBITDA of $43-44m (representing ~9% growth). However, longer-term growth is less certain with intensifying competition, a broader shift to gas (for which PEA has less competitive advantage), and a lack of progress in Africa. We peel back long-term growth forecasts pending evidence of pipeline conversion. Until then, and given our reduced valuation of $0.70 per share, we downgrade to a HOLD (prior BUY on $0.80 valuation).

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Austal Limited (ASB) - Growing Confidence In US Margin

Austal Limited LogoSolid performance from the US last financial year did two things. It underpinned $58.7m group underlying EBIT in FY17 and gave ASB the confidence to upgrade margin guidance for US shipbuilding from 5-7% to 6-8%. US ships’ revenue in FY17 was $849m, so it implies a meaningful uplift. It offsets current weak earnings in Australia and the Philippines, where work transition has impacted revenue and profit recognition. There is cause for optimism for both these regions given significant recent intake of ferry contracts and upcoming potential naval work. We expect a marked earnings pick-up in FY19, a year which could see all three regions delivering in tandem. It helps lift our valuation to $1.96 (prior $1.80) and brings us to upgrade to buy (prior hold).

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Peet Limited (PPC) - Reaping The Benefits

Peet Limited LogoThe FY17 results showed PPC is reaping the benefits of prior year restructuring. NPAT of $44.8m was up 5% on FY16 and ahead of our forecast, while an ongoing focus on capital management and a disciplined approach to new investment delivered strong cash flow and reduced gearing to 21%. PPC is well positioned for growth in FY18 and beyond, with more than 80% of the diversified land bank expected to be in development by 2019. The >50k lots on hand would sustain PPC for the next 17 years at current sales rates. Our upgraded valuation of $1.50 (prior $1.40) underpins our maintained buy call.

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Global Construction (GCS) - Building A National Footprint

Global Construction Services LogoGCS successfully diversified its business onto the East Coast and continued to strengthen its balance sheet in FY17 (currently $3.8m net cash). Whilst FY17 results were softer than we forecast, we expect significant growth opportunities in the future for the commercial sector in particular. We believe execution of the East Coast expansion strategy and balance sheet strength warrant multiple expansion; we now value GCS on 8.0x P/E (previously 7.5x). GCS trades on undemanding multiples and offers value as well as growth. BUY call maintained on a blended $0.80 valuation.

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OZ Minerals (OZL) - H1 2017 Financials & Carrapateena Feasiblity

OZ Minerals LogoOZ Minerals (OZL) release H1 financial results with revenue of $446m, underlying EBITDA of $39m and NPAT of $80m. Underlying NPAT of $81m was up $26m on the corresponding period in H1 2016. The Company retains a strong balance sheet with $625m cash and no debt. OZL has made a decision to progress the Carrapateena project through to development with commissioning forecast for Q4 CY19. The updated Feasibility Study (FS) highlights production of 65kt Cu and 67Koz gold at all-in sustaining costs (AISC) of US$0.99/lb, with $916m pre-production capex. While we regard the project as marginal on an IRR and NPV10 basis (15% and $595m respectively, Argonaut est.), OZL has significantly de-risked the technical aspects of the project and can fully fund development from existing cash and future cashflows from Prominent Hill. Argonaut downgrades OZL to a HOLD recommendation with a revised target price of $8.95 (from BUY at $8.20).

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