Hot Shares to Buy Ausdrill (ASL)

Ausdrill ASL ASXAusdrill (ASL) is an international mining services group, whose principal activities include providing cutting edge drill and blast, exploration, supply and logistics services to the world’s major mining companies.  They are a diversified company which generates its revenue from a wide range of activities.

ASL has a list of blue chip stocks who are its clients, including BHP Billiton, Rio Tinto and Fortescue Metals.

Over the past few years, ASL has made a well-planned effort to diversify its business and offer more services than the traditional drill, blast and exploration drilling businesses.  These additional services encompass more services to the mining industry.

This diversification is paying dividends, and contributing materially to revenue and growth, while supporting the company’s major goal of becoming a total service provider to the mining industry.

Being heavily dependant on the resources sector, ASL also went through tough times in 2008 on a major correction in the commodities markets.

ASL recently reported first half results with revenue and profits at record levels.  It has been one of the hot stocks recently, surging more than 20% in the past week and a half alone.

Expansion on track

On 17 August 2009, ASL and Brandrill Limited (BDL) announced a proposed merger of the two businesses.

The integration has now been completed and the two businesses are largely complementary with significant synergies.

The move helped Ausdrill gain an immediate presence in Queensland, and the coalfields in the Bowen Basin.

The area is rife with opportunities associated with the recently approved Gorgon Project.

ASL has also significantly increased investment in plant and equipment.

Rising activity in the coal seam gas (CSG) market is likely to see greater demand for ASL’s services.

Africa continues to provide growth for ASL as mining activity ramps up in East Africa and Zambia.

Half results

For the half ending 31 December, ASL reported a 48% jump in underlying earnings to $95.9 million.

Net profit after tax for the period surged 72% to $36.3 million with EPS up 17% to 13.87 cents per share.

Revenue from operations soared 60% to $416 million boosted by the Brandrill integration.

ASL was also awarded new contracts in Africa by Perseus and Adamus.

Following its solid performance, ASL was promoted to the ASX 200 index.

Looking ahead

The company is targeting FY11 net profit after tax of $70 million implying a second half performance similar to the first half.

Unusually wet weather in Australia remains a key risk to operations as well as adverse currency movements.

ASL expects continuing improvement from increased level of activity. Revenue is already at record levels and increasing in all segments.

Margins are also improving after having been impacted by the Brandrill acquisition.

With an interest cover of 6.2 times, Ausdrill has its debt under control.

Despite its fairly high level of capex, ASL’s high level of cash generated should be sufficient to maintain strong profitability.

Commodity prices continue to charge higher which is a key upside driver for ASL as its blue chip clients generate higher earnings.

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