##{"id":59834,"date":"2012-04-23T10:47:47","date_gmt":"2012-04-23T00:47:47","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2012\/04\/23\/ausdrill-winning-admirers\/"},"modified":"2012-04-23T10:47:47","modified_gmt":"2012-04-23T00:47:47","slug":"ausdrill-winning-admirers","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2012\/04\/23\/ausdrill-winning-admirers\/","title":{"rendered":"Ausdrill Winning Admirers"},"content":{"rendered":"

\n\t – UBS initiates coverage of Ausdrill<\/span> with a Buy rating
\n\t – Buy rating supported by solid earnings growth expectations
\n\t – Earnings risk to the upside in the view of UBS<\/strong><\/p>\n

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

\n\tAusdrill<\/span> is a diversified mining services company, providing services in contract mining, grade control, drill and blast, exploration, mineral analysis, procurement and logistics and manufacturing. Ausdrill<\/span> operates in Australia, Africa and the UK.<\/p>\n

\n\tPrior to this week, four of the five brokers in the FNArena<\/span> database already covering the stock rated Ausdrill<\/span> as a Buy. The positive views have been added to today with UBS initiating coverage with a Buy rating and $5.00 price target. This compares to a consensus price target according to the database of $4.55, ranging from BA Merrill Lynch at $4.20 to UBS at $5.00.<\/p>\n

\n\tSupporting the positive view of UBS is the expectation Ausdrill<\/span> will deliver compound earnings per share (EPS) growth of 24% over the period of FY11<\/span> to FY14<\/span>. This reflects UBS's positive view of an uplift in commodity production, which bodes well for Ausdrill<\/span> given 85% of the company's revenues are generated from production related activities.<\/p>\n

\n\tFor UBS, earnings risk for Ausdrill<\/span> is to the upside with the broker currently 7-8% above consensus EPS estimates in both FY13<\/span> and FY14<\/span>. UBS's EPS forecasts stand at 36c<\/span> this year and 45c<\/span> in FY13<\/span>, while consensus numbers according to the FNArena<\/span> database are 36.7c and 41.4c respectively.<\/p>\n

\n\tWith the company well positioned in both Australia and Africa, UBS expects positive revisions to market forecasts going forward. What should support increases to expectations according to UBS is Ausdrill's<\/span> ability to generate higher margins from incremental revenues as the company invests additional capital in its business.<\/p>\n

\n\tIn the view of JP Morgan, Ausdrill's<\/span> interim result in February showed management has done a good job in terms of boosting returns via investing additional capital in both Australia and Africa. With a still strong balance sheet the company is well placed to continue this investment, which supports further earnings growth in JP Morgan's view.<\/p>\n

\n\tRBS<\/span> Australia agrees, taking the view while capex<\/span> is set to increase significantly over the next year or so this is justified by the opportunities available to grow earnings via this capex<\/span> spend. At the same time, RBS<\/span> suggests good earnings visibility for Ausdrill<\/span> justifies a higher share price. <\/p>\n

\n\tBased on its earnings growth expectations, UBS suggests an earnings multiple for Ausdrill<\/span> of 11 times in FY13<\/span> is appropriate. While this would be a premium of 18% relative to the current sector average multiple it would be justified by the earnings growth on offer. As well, UBS suggests the premium would reduce as the sector in general is re-rated.<\/p>\n

\n\tThe one Hold rating in the FNArena<\/span> database comes from BA-ML, who downgraded Ausdrill<\/span> from a Buy in February following the group's interim profit result. While the result was better than expected the issue for BA-ML is valuation, even allowing for a continuation of positive operating leverage.<\/p>\n

\n\tIn a weaker market today shares in Ausdrill<\/span> are slightly lower. At 10.30am the shares were down 1.5c at $4.175, which compares to a range over the past year of $2.52 to $4.34 and implies upside of a little more than 8% relative to the consensus price target in the database.<\/p>\n

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