Ausgroup :: Tapping on Aussie Development

Ausgroup is a recent Sesdaq listed company (27 April 2005). It issued 52 million shares at 22 cents apiece during its IPO raising $8.1 million to fund working capital. I had swore off investing in Sesdaq listed company after an unpleasant experience with Automated TouchStone. Never heard of it? It's ok, you would miss it. However, Ausgroup is such a gem comparatively and is really hard to ignore and I decided to invest in Ausgroup for this exception. Ausgroup's operations are mainly focused on Australia.
Ausgroup is an integrated multi-disciplinary engineering services provider serving mainly the oil and gas and mining-related which includes extraction and processing of mineral ores industries. From industrial construction to maintenance services, the Group is able to provide total engineering solutions and specialist services across a variety of fields.

The Group's principal activities are undertaken through its engineering division and services division respectively. The engineering division comprises of its oil and gas, LNG ("Liquefied natural gas") projects, fabrication and industrial construction business units while the service division is made up of its maintenance, protective coatings, insulation and refractory linings business units.

The Group services the needs of renowned customers from the Energy sector (oil and gas, LNG) Apache Energy, Woodside, Shell, BP, Chevron and Roc Oil and Mining Resources( Iron Ore, Nickel, Gold, Coal, Alumina)Rio Tinto, BHP, Wesfarmers, Alcoa World Alumina and Worsley Alumina.


The business model of Ausgroup is similar to the water treatment companies. It a basica Build-Maintain-Upgrade business model. This provides Ausgroup with recurring income from completed projects which is nice to have. However, I observed some projects completed by Ausgroup are on a rolling contract basis for maintanence probably favoring the other party. This could be a slight concern for investors in Ausgroup. However, the management touched on the point that maintanence is always in demand and could buffer Ausgroup's performance even in difficult times. True to a certain extent, but not to be too optimistic about.

Based on Ausgroup's Investors Presentation, they provided an insight to their growth prospects of the industry they are in.









* information is based on insider information, the integrity of the news cannot be verified.







Ausgroup book order already looks promising going into 2007.

The management highlight several strategies going forward.



In Australia, Ausgroup continued to focus on Energy and Mining activities,target defence contracting and continue to grow their services business unit. To form joint ventures and alliances with Gorgon modules and defence ship building. The management possibly hinted at future mergers and acquisitions in the near medium term.

Ausgroup recently placed out a total of 39,477,000 new ordinary shares at the issue price of S$0.2896 for each placement share. The placement increased the total issued shares to 339,477,000 ordinary shares. This took place on 5th May 2006. EPS will be diluted to 1.0 Australian cents from 1.2 Australian cents based on the 6 months ended 31 December 2005.

The estimated net proceeds from the Placement, after deducting expenses will be S$1.2 million. The net proceeds will be used for working capital. My opinion on this share placement is a positive development for Ausgroup. It increases the liquidity of Ausgroup shares which usually plagued small share issues, healthy take up of new share issued and provides long term investors an opportunity to take part in the infrastruture building of Western Australia.



Extracted from the article Hu Jintao's visit to Australia:

"..............
While speeding up strategic economic restructuring, we are vigorously implementing the strategies of revitalising China through science and education, of sustainable development, of the development of the west and of renewal of the old industrial base of north-east China.

China enjoys a vast market, abundant labour, social and political stability and a vibrant momentum for development.

A stronger and more developed China will bring growth opportunities and tangible benefits to other countries in the world.

China and Australia are highly complementary economically.

Blessed with a vast territory and rich resources, Australia boasts of economic and technological successes.

The potential for China-Australia economic cooperation is immense.

Past, present or future, we see Australia as our important economic partner.

China-Australia trade grew rapidly in recent years from $US87 million ($A124.67 million) in the early years of diplomatic relations to $US10.4 billion ($A14.9 billion) in 2002.

China has become Australia's third largest trading partner, the fourth largest export market, and the fastest-growing one.

Australia is China's ninth largest trading partner and the biggest supplier of wool.

Over the years, China has purchased large amounts of iron ore and aluminium oxide from Australia which has such energy and mineral riches.

Last year, the two countries signed a 25-year, $25 billion deal on LNG in Guangdong, thus laying a solid foundation for bilateral energy cooperation. ......"


Another related article:

President Hu Jintao Meets Australian Business Leaders and New South Wales Governor Marie Bashir and Premier Robert Carr

Thread from CNA on AusGroup:
CNA Market Forum - Ausgroup

Investor Relations - ZaoBao IR


Based on DCF,



Today's share price of $0.305 represents a terrific 96.7% discount from its intrinsic value.



Cheers
Niversphere.


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Please read the prospectus and perform your analysis before making any investment decision. The above does not constitute a recommendation to apply for this company. I will not be liable for any losses incurred by anyone who invests based solely on the above-mentioned information