##{"id":59723,"date":"2012-03-28T14:14:10","date_gmt":"2012-03-28T03:14:10","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2012\/03\/28\/strong-growth-outlook-for-decmil\/"},"modified":"2012-03-28T14:14:10","modified_gmt":"2012-03-28T03:14:10","slug":"strong-growth-outlook-for-decmil","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2012\/03\/28\/strong-growth-outlook-for-decmil\/","title":{"rendered":"Strong Growth Outlook For Decmil"},"content":{"rendered":"

\n\t – Decmil<\/span> set for solid earnings growth
\n\t – Exposure to managed village sector offers upside
\n\t – Moelis<\/span> sees value at current levels
\n\t – Other brokers to cover the stock also rate Decmil<\/span> a Buy<\/strong><\/p>\n

\n\tBy Chris Shaw<\/p>\n

\n\tWhile mining service companies have been of particular interest to investors in recent months, Moelis<\/span> notes those offering accommodation villages among their services have been priced at a premium to broader mining services exposures.<\/p>\n

\n\tFor Moelis<\/span> this suggests a positive outlook for Decmil<\/span> Group ((DCG<\/span>)), as there appears to be upside with the Calliope village near Gladstone contributing a greater proportion of group earnings going forward. Moelis<\/span> rates Decmil<\/span> a Buy, with a price target of $3.30.<\/p>\n

\n\tWith respect to the Calliope village, Moelis<\/span> notes expansion plans continue to suggest the planned 2,265 rooms will be installed by April of next year. Revenues for Decmil<\/span> will come from both the construction contract and a 50% ownership stake, with Moelis<\/span> forecasting a room rate of around $110 per night.<\/p>\n

\n\tFeedback from management at Decmil<\/span> suggests this may be a conservative estimate in terms of per room per night revenues. This offers some upside risk to earnings estimates for the division, as Moelis<\/span> points out an average rate of $150 per night would add 10% for FY14<\/span> earnings per share (EPS) forecasts.<\/p>\n

\n\tElsewhere, Decmil<\/span> should generate revenue growth from additional contracts in the LNG, coal and iron ore sectors. Moelis<\/span> estimates there are around $4.0 billion of such contracts to be awarded over the coming year, with Decmil<\/span> winning $280 million in new work and extensions in 1H12<\/span>.<\/p>\n

\n\tGrowing credibility in the civil sector will help, Moelis<\/span> suggesting a recent preferred contractor agreement with Rio Tinto ((RIO)) for 333 Program civil works will assist in boosting Decmil's<\/span> status in the market.<\/p>\n

\n\tFor the current year Moelis<\/span> anticipates a strong second half for Decmil<\/span>, with revenues for the full year expected to increase by more than $500 million. This supports Moelis's<\/span> model for solid earnings growth in coming years, as EPS are expected to increase from the 18.7c recorded in FY11<\/span> to 20.1c this year and 24.1c in FY13<\/span>. <\/p>\n

\n\tThis compares to consensus EPS forecasts according to the FNArena<\/span> database of 21.2c in FY12<\/span> and 24.4c in FY13<\/span>.<\/p>\n

\n\tFor Moelis<\/span>, the combination of a justifiable premium for village earnings and solid earnings growth in general for Decmil<\/span> is enough to justify a Buy rating on the stock. This is especially the case as the broker's EPS forecasts for FY13<\/span> imply an earnings multiple for that year of 11.8 times, which is below peers offering managed accommodation as part of their business such as Fleetwood ((FWD)) and the recently acquired Mac Services.<\/p>\n

\n\tAlso supportive of Moelis's<\/span> positive view on Decmil<\/span> is a strong financial position, as cash on hand at the end of 1H12<\/span> was $107.7 million and debt was just under $17 million. Cash on hand increased from $64.4 million at the end of FY11<\/span>. <\/p>\n

\n\tOthers in the market agree Decmil<\/span> has a positive outlook, as both Deutsche Bank and RBS<\/span> Australia rate Decmil<\/span> as a Buy, Deutsche having initiated coverage on the stock earlier this month. As well as the scope for earnings growth in coming years, Deutsche is attracted to the recurring nature of earnings in Decmil's<\/span> construction operations. <\/p>\n

\n\tPart of the attraction for RBS<\/span> is Decmil<\/span> continues to grow from what was a WA-centred<\/span> company initially to one well on the way to operating nationally, while still maintaining earnings growth through this expansion.<\/p>\n

\n\tWhile RBS<\/span> is more conservative with a price target for Decmil<\/span> of $2.99, Deutsche's3.25 target is much closer to the target set by Moelis<\/span>.<\/p>\n

\n\tShares in Decmil<\/span> today are unchanged with a last sale price of $2.83. This implies upside of around 10% relative to the consensus price target in the FNArena<\/span> database and compares to a trading range over the past year of $1.725 to $3.85.<\/p>\n

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\n\tFind out why FNArena<\/span> subscribers like the service so much: "Your Feedback (Thank You)<\/a>" – Warning this story contains unashamedly positive feedback on the service provided.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"