Stock of the Week Austin Engineering (ANG)


Austin Engineering (ANG) provides an array of manufacturing, repair and support services to the mining, oil and gas, aluminium and industrial sectors.

The company has manufacturing facilities in Australia, the US and the Middle East. Its products and services include JEC mining and earthmoving products.

As such, ANG is a major beneficiary of a booming resources sector and has been one of the hot stocks in recent months on an extremely robust environment for mining in Australia.

In mid-August, ANG reported yet another year of record profit, with net profit after tax (NPAT) of $19.3 million for FY10, up 30% from the previous year’s result.

Mining boom

A recent major strategic acquisition for ANG was the Pilbara Hire Group in Western Australia for $13 million – an acquisition which presents compelling value to ANG.

Pilbara Hire carries out most of its work in the lucrative Pilbara region where blue-chip stocks, Rio Tinto and BHP Billiton, have established a strong presence.

The timing is right for ANG to pick up more customers, with Treasurer Wayne Swan revealing earlier this week that Australia is about to embark on its biggest mining investment boom since the 1850s Gold Rush.

Mining investment plans this year have been up almost 50%, whilst mining companies are planning to invest five times more this FY than they were six years ago.

The current pipeline of resource projects in Australia is nearly $360 billion, with $110 billion being in advanced projects.

Australia’s engagement with Asian countries has enabled trade and investment to grow, particularly in the mining sector, which is good news for ANG.

Another record year

In mid-August, ANG reported yet another year of record profit, with net profit after tax (NPAT) of $19.3 million for FY10, up 30% from the previous year’s result.

Core earnings increased by 23% to $26.5 million, at an average annual margin of 18.4%, confirming the improvement in operating performance achieved during the year.

The company declared a final dividend of 7.5 cents per share, bringing the full-year dividend to 9.5 cents, an increase of 19% over the FY09 dividend.

The group finished the year with available free cash resources of $21.1 million, up from $14.9 million in the previous year.

The company raised $31 million in fresh capital in July 2009 to facilitate its expansion into South America.

Behind the numbers

ANG attributed the stellar FY10 result to improved efficiencies across the Australian operations during the year due to larger orders and higher capacity utilisation.

The result also reflected eleven months of revenue and profit contribution from the group’s new operation in Chile, which performed well during the year.

Solid operational performance by the group’s JV operations in Oman also provided enhanced levels of profit contribution.

ANG’s expansion into South America (initiated in August 2009) upon the acquisition of the steel dump truck body business of Conymet Limitada in northern Chile was also key in solidifying ANG’s position in the global mining equipment market.

Outlook

ANG’s stock has been in a strong uptrend since 2009, making it one of the better performers in the Australian share market, and it is easy to see why.

Aside from the company’s inherent strength and ability to expand into growth regions, the group has benefitted from a massive pick-up in global mining sector activity.

Australia is looking to benefit from this boom, with a rush of mining investment to support ANG’s order book in the coming years.

ANG’s FY10 results revealed yet another strong year of record earnings and FY11 should be similarly impressive, thanks to ANG’s recent expansion into the Pilbara and Chile and on increased demand for mining services.

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