AAX; Industrials; Upgrade to BUY
Upgrade to BUY
We are upgrading Ausenco from Hold to BUY for the following key reasons:
Looks cheap: Trading at a 20% discount to the market and 10% discount to the sector
Leverage: Ausenco has a high level of leverage to an upturn in mining capex which we anticipate to occur in the next 6-12 months
Short term catalysts: We expect contract wins in the next quarter
Positive leading indicator: Ausenco is presently working on a high level of feasibility studies
Strong balance sheet: Ausenco has a net cash position following the recent capital raising
Forecasts, valuation and price target (PT)
We are not changing our CY09 EPS forecasts but are upgrading our CY10 and CY11 EPS forecasts by 8% and 17% respectively in anticipation of the upturn in mining capex and expected contract wins for Ausenco.
As a result of these earnings upgrades our DCF valuation has increased by 30% to $6.00.
EPS Revision:
FY10: +8.2% to 42.3c
FY11: +17.1% to 47.6c
12 Month Target Price: $6.30 (was $4.85)
Share price: $4.84
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