UOB Kay Hian’s John Cheong has kept his “buy” call and $1.10 target price on Civmec P9D , following news that the Australia-based contractor has won A$100 million ($89.8 million) worth of new contracts, bringing its order book to A$1.2 billion.
One of the contracts is to build and assemble 25 tanks for lithium producer Albermale Lithium, described as a “blue chip” customer of this industry.
Driven by growing demand for electric vehicles, whose batteries need lithium, Australia expects exports of this metal to grow four-fold to A$19 billion come 2028, which makes this on par with thermal coal.
In addition, Civmec, chaired by James Fitzgerald, also one won its single largest maintenance projects in the aluminium sector from Queensland Aluminium, thereby adding to the stream of recurring income which it has been trying to grow.
In a mark of the company’s confidence, it doubled its interim dividend for 1HFY2023 ended Dec 31, 2022 to 2 Australia cents, underpinned by stronger operating cash flow of A$67 million, putting the company in a net cash position for the first time since 2016.
From Cheong’s perspective, this higher dividend payout, plus a stronger orderbook, are indications of positive earnings prospects.
“The company is focused on securing projects that will allow it to generate good returns, optimise its workforce and enable it to keep replenishing its orderbook,” writes Cheong in his April 5 report.
The $1.10 target price is pegged to 11x FY2023 earnings, which is 1 standard deviation (s.d.) below its five-year mean. Civmec’s peers are trading at an average of 12x historical earnings.
“We think the current valuation of 6x FY2023 P/E is attractive, given its strong growth profile of 10% three-year EPS CAGR for FY2022-FY2025 and huge orderbook,” notes Cheong.
