Ann: New Contract for SC Services-DCG.AX, page-38

The best answer I can come up with is…..
“it’s the constitution, it’s Mabo, it’s justice, it’s law, it’s the vibe, and ….. that’s it….it’s the vibe. I rest my case.”

The second best answer I can come up with is:

• Decmil will have a shocking 2015/16. It has been punished by the market (and rightly so). But as always (IMO) the market over reacts. I like buying recovery stocks because if you get it right you get the best bang for your buck. Give me a stock that gives you a 50% return over a couple of years rather than the miserable returns the overall market gives.

• Despite the shocking numbers for 15/16 – NSV $300m to $320m and EBIDA $11.5m to $13.5m (assuming Hastings short fall) the business has a number of fundamental financial strong points; mainly no debt, $42m in cash and a proven cash flow positive history. I don’t expect a final dividend which is OK by me because I would rather have the capital gain at the moment.

• Despite the ordinary result, management (who should understand the business) have had no hesitation in buying stock. Scott Criddle has bought 1,714,390 shares at @80c (both on and off market) and 200,000 shares @77c. Big money as far as I am concerned and if it was me I certainly would not be doing it if I thought the business was overvalued. Also the business has bought about 10% of its stock back over the last 12 months for prices ranging from $1.30ish to a $1.00. Again companies only buy stock back if they believe it is undervalued. I would be more than happy if the company buys another 10% back in 2016/17.

• The company is clearly in transition. Only 15% of revenue will come from mining services in 2015/16. Decmil has now positioned itself to take advantage of the massive expansion that is happening in Government projects. In particular the Cut & Fill acquisition in February will be a key driver in taking advantage of the “river of money “ that is starting to flow from Governments. In Victoria alone we will see $30billion spent, or committed to be spent, in road and rail projects over the next 10 years (This does not include the “missing link” in the ring road which will be announced in the next 3 months). NSW is also rapidly expanding its infrastructure spend as the population expansion is placing a massive strain on current infrastructure.

• Word of mouth: For some reason I tend to attract Engineers of all types. From good mates, to next door neighbours, to my son I have a habit of finding myself in the company of Engineers. The one common thread - to put it bluntly – is they are all flat knacker (a technical engineering term) with massive workloads as they gear up for projects. While the mining boom is gone (re building the infrastructure) the Civil Engineering boom is just starting.

So in summary. “What is the rationale for the share price going back to a $1.00?”
Well yes it’s the Vibe. At the end of the day when you do your research you have to have the vibe. Otherwise don’t invest. I am more than happy with the vibe from DCG so I have put my hard earned in and expect a good return. There is no guarantee in the investment game. However I am very confident the upside far outweighs the downside for Decmil. Guess time will tell – always does.