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CIVMEC Boom: Is There More Steam Left?
Corporate Digest | 31 August 2012
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BHP Billiton’s poor full year earnings and the delay of its A$30 billion Olympic Dam expansion project in South Australia have drawn strong adverse reaction from the market. Foreseeing a bleak outlook for Australia’s mining industry, Resources Minister Martin Ferguson has declared an end to the resources boom which had cushioned the country against the global financial crisis for more than 21 years.

While a Reserve Bank of Australia statement claiming that there are no immediate sign of an end to the Australia mining boom was issued immediately, one cannot deny that the delay did highlight qualms about the health of the minerals rush in Australia.

Some experts are pointing to China as the culprit of the slowdown in Australian mining industry. Notably, big global miners have widely reported that their performances were injured by weaker prices for iron ores, copper, coal, nickel and aluminium as the big buyer’s slower growth trajectory hurt the demand for global commodities.

In the face of the intensifying debate about the durability of the mining boom, the exceptional climb in the share price of newcomer CIVMEC has slowed to a halt in August, which was the month the company released its robust FY12 results. This price action is in stark contrast to its 93.4 percent jump in the two-month period ended July. The Singapore-listed construction and engineering firm, whose business is derived from the mining and oil and gas sectors in Australia, was listed on the Singapore Exchange on 13 April after selling 101 million shares.

The Mining Road Ahead
Ferguson’s remark might come off as a wake-up call to investors that calls into question whether CIVMEC’s growth engine is still intact. For CIVMEC, mining and other segment accounted for more than three-quarter of aggregate revenue and close to two-thirds of total gross profit in FY12. Based on the company’s financial disclosures, the numbers are by far the largest.

It is true that good things do not last forever. However, the indication that Australia’s mining boom is nearing its peak does not mean that the industry is no longer in an expansionary mode. According to BIS Shrapnel, the mining industry is expected to extend its dominance in the Australian investment landscape with A$202 billion in capital expenditure being projected for the 2011 to 2016 period. Further ensuring that projects flow its way, CIVMEC has strategically situated its workshop, Henderson Facility, in a region which is slated to get the lion’s share of the engineering construction activities – Western Australia.

In an interview with Bloomberg, chairman of CIVMEC, James Finbarr Fitzgerald, divulged that none of its clinched deals has been cancelled. “The long-term outlook [of the industry] is probably looking a bit quieter. For us, it’s not a bad thing because there are so many projects happening at the present moment,” he said. “If the jobs are spread out over a longer period of time, it will help us focus better.”

Having outperformed the Straits Times index by an outstanding margin of over 170 percentage points, CIVMEC is trading at around 19 times its historical earnings as at 28 August after turning in its FY12 results.

It does seem like investors are taking a second look at the company lately. Concern of falling gross profit margin and the company’s over-reliance on its major clientele that includes mining giants BHP Billiton and Rio Tinto, are planting doubts all over. Adding these to seemingly tough business conditions in Australia, sustainability will be an issue.

This is a co-written article of Shares Investment, which lays out the analytical ideas and thoughts of the authors, who are well versed in investments and market concepts.

Civmec  0.340 -0.025 -6.85%   
Business: An integrated, multi-disciplinary construction & engineering services provider. [FY18 Turnover] Metals & minerals (61%), infrastructure (19.5%), oil & gas (19.5%).

Insight: Aug-18, FY18, Co reported a net profit of $26.2m, ... Read More

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