Peter Russell, of Russell Research, believes engineering companies servicing the resources sector enables investors to take advantage of the mining boom with less risk. Companies “making the shovel” to extract minerals benefit from more mining, but aren’t held hostage to fluctuating commodity prices on a daily basis. Increasing mining volumes means more manufacturing and engineering services. He says Austin Engineering is in the right place for investors. Servicing the resources sector, Austin’s share price has grown 20-fold since listing in March 2004. Its focus on cutting-edge welding and robotics has driven acquisition growth across Australia, Oman, Chile, Brazil and the US state of Wyoming. Austin makes quality dump truck bodies, specialist equipment and fabrications for major resource groups worldwide. Full year 2011 was yet another record year despite delays with new operations in Chile and the Hunter Valley amid start-up costs in Indonesia and Columbia. Russell expects full-year 2012 to deliver benefits from these initiatives, strong workloads and a multi-year Xstrata contract in Peru. Austin has $37 million in net cash and Russell expects today’s earnings per share of 30 cents to grow by 30 per cent this year. It offers a franked dividend yield above 3 per cent. In relation to potential corporate activity, listed company Bradken has a 19.1 per cent stake in Austin, which Russell says underpins any share price downside. He says Austin and Bradken have similar businesses, enabling cost saving synergies to be extracted if a deal was done. If another company made a bid for Austin, Russell says he would expect Bradken to fiercely compete to the benefit of Austin shareholders. “You don’t need to be a Bradken to buy this story,” he says.
ANG Price at posting:
$3.75 Sentiment: Buy Disclosure: Held
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