You all have been asking me for a long time now to share my own views on stocks that I like and at the same time explain the underlying reasons why I think the selected share is a goer. Today marks my capitulation to these requests and the first company I put forward is really outside the kinds of companies I generally invest in – it’s called Audrill Limited (ASL).
This week I interviewed the company’s chief financial officer, Jose Martins, for my SWITZER program on the Sky News Business channel, and I was really impressed with the guy.
Ausdrill is a mining services group that has lifted its net profit by 53% in the past year. Net profit after tax was $112.2 million – a record high – and for the first time, its revenue went over a billion dollars. That was a 25% gain.
The company works worldwide and has customers such as BHP Billiton and Newmont. I like the fact that it gets around 60% of its revenue from the gold industry and with all of this QE3-style monetary expansion around the world, some experts think gold is going to soar to US$2,400 an ounce. Leave me out of those predictions, but I do think gold is going up.
Now, you could be asking why would I go for a drilling company with mining slowing? It’s a good question. But exploration drilling only accounts for 11% of the company’s revenue, with last year’s growth driven by drilling for miners that were producing. Jose Martins expects the company’s revenue to grow by 15% this year.
The company’s last share price was at $3.04 – a record – and its dividend last year was 14.5 cents fully-franked. That’s a dividend return of around 4.7%.
It’s not just me
Rudi Filapek-Vandyck of FNArena tells me that in his broker review, five stockbrokers rate Ausdrill a “Buy”, one says “Sell” and one is neutral. Gary Stone of Share Wealth Systems, whose analysis I respect, called Ausdrill one of his 16 gold medal stocks and he likes the fundamentals on it going forward.
“Ausdrill has continued to increase or maintain its dividend payout since June 2002 from 1.5c to 14.5c giving a current dividend yield of 4.8% and a long-term annual DPS (dividend per shares) compounded growth of 25.5%,” he pointed out.
Share price growth over this time has been ten-fold from 30 cents to $3 – that’s an annual compounded growth rate of 26%.
But I liked this observation from Gary: “Ausdrill has long-term annual EPS (earnings per share) compounded growth over the 10 years of 15.63%, indicating that it could intrinsically sustain a PE (price to equity) Ratio of around 15. Currently the PE ratio is around half of that at 8.1. Furthermore the forecast EPS for June 2013 is at 44.7 cents, a further 20% rise.”
The return on equity (ROE) for Ausdrill is sound at 15.6% and it has a reasonable debt to equity ratio at just under-50%.
The company has seen some price pressure and Gary says $2.60 to $2.70 could be a good buying zone given the positive fundamentals, but that might not happen.
Short-term players might want to wait, but I think Ausdrill is a good longer-term play because I reckon the QE3-style stimulus action will generate growth and this will be good for companies in the mining services area.
At the moment the short-termers have driven down prices, but this is a buying opportunity for longer-term stock collectors.
Not to be entirely one-sided, my charts guy Lance Lai is not so certain about the company, especially in the short-term, with technical indicators on the charts not as positive as fundamentals. In the best of worlds, I would like Gary and Lance to give a thumbs up, but both are suggesting that there still could be some downside price movement.
From my point of view, if I bought in now I would buy again on dips to dollar cost average it to a better price.
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