Share To Buy: Forge Group Limited (FGE)


Forge Group Limited LogoForge Group Limited (FGE) identified as a share to buy is a multidisciplinary Engineering, Procurement, and Construction (EPC) service provider. The group, with over 1,700 employees delivers end-to-end EPC turnkey solutions to the power and infrastructure, minerals and resources, and oil and gas sectors in Australasia and Africa.

FGE services some of Australia’s and the world’s most reputable mining and energy companies such as BHP Billiton, Rio Tinto, Fortescue Metals Group, Woodside, Chevron, MCC and AngloGold Ashanti.

The group has four divisions, branded as follows:

Forge Group Construction
Forge Group Minerals & Resources
Forge Group Africa
Forge Group Power

 
1H13 Results

FGE’s results for the first half of the financial year were impressive. Revenue was $502.9 million for 1H13, up a staggering 123% when compared to the prior corresponding period.

Net profit for the half was $49 million, a massive 60% increase on the 1H12. Much of the above was helped by the acquisition of Forge Group Power (formerly CTEC), which it acquired in early 2012 for $38.6 million.

FGE balance sheet is also in a very healthy position, with a net cash position of $161.9 million at the 31 December 2012, up from $81.8 million at the same time in 2011.

Cash flow from operations was very solid, almost tripling to $79 million from $28 in 1H12. The group also increased its interim dividend by 60% to 10 cents a share.

Growth driven by Power

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The above shows steady revenue growth up until the 2H12, after that revenue exploded due to the acquisition of Forge Group Power (formerly CTEC). As of 23 January 2013, the group had an order book of $1.04 billion, $462 million of which was secured in the December half.

The order book includes such projects as: power stations for mining giants Rio Tinto and BHP; an ore processing facility for Fortescue Metals; and Navy Fleet Maintenance for the Australian Navy.

Outlook

FGE’s 1H13 results were spectacular and its outlook appears to be promising, with a range of projects on the go. The company’s should be able to continue leverage its current relationships with mining majors BHP, Rio Tinto and Fortescue into new contracts in the future.

Interestingly 82% of the new contacts secured in the 1H13 were for the power division, which we see as a good move. While many other mining service contractors are fighting over the more common capital expenditure projects, FGE has recently been positioning itself in the less competitive power solution business.

We believe that groups position as a power provided coupled with its strong balance sheet will continue to see the company growth its earnings and as a by-product its share price.

The Forge Group was issued as a share to buy to our members on March 6th, if you would like further information you can sign up for FREE share recommendations and access all our research files on not only WDC but all our current trading ideas. Simply click here and starting trading today, free for 7 days.