Under The Radar

RCR TOMLINSON Engineering & infrastructure services In early April RCR announced that it had restructured its business in order to reduce its cost base and exit out of coal and pre-fabrication activities. The latter referring to assembling and transporting components of infrastructure. There will be costs associated with the restructure, and we estimate about $25m, which will increase its debt to about $57m. But on the flip side, the company’s policy of not taking on work where there is a high enough profit margin protects it against cost blow outs. Plus, it is winning projects on the infrastructure side, where there are better profit margins. In late March it was awarded a contract which could be worth more than $400m for the Origin Energy Darling Downs Solar Farm. The contracts are for the design and construction of a 200MW solar panel, and follows the completion of a smaller 53MW solar farm at Broken Hill in the first half FY16 for AGL. RCR is also in a very good position to benefit from spending on roads and rail on Australia’s East coast. It recently upgraded Sydney’s Wynyard train station, and is chasing road and rail tunnel projects, including Victoria’s level crossing removals. n RADAR RATING: Trading on a PE of about 8 times and on a dividend yield of 5% we don’t think there is much risk of disappointment from here. This company is run by impressive management and we think it represents a long-term opportunity. BUY.