OTOC Limited in strong profit result, up 148%
OTOC Limited’s (ASX: OTC)
strong growth in its government infrastructure, communications and
facilities divisions has driven a 148% increase in the company’s profit
from operating activities for the half-year ended 31 December 2013 to
$4.8 million.
Revenue for the period is up 45% from the previous
corresponding quarter to $73.8 million while net profit after tax is up
264% to $2.7 million.
The results are especially noteworthy given the general slowdown in resources construction activity.
In addition, a 145% increase in cash at bank to $9.1 million and a $8.2 million finance facility with Commonwealth Bank ensures the company has a solid funding platform to pursue organic growth and strategic acquisitions.
“Despite
difficult trading conditions in the mining services sector, OTOC has
managed to deliver strong revenue from its traditional North-West
resources market and supplemented that revenue with solid growth in its
government infrastructure, communications, facilities and surveying
businesses,” chief executive officer Simon Thomas said.
“The company has succeeded in producing a solid operational and financial performance in the first-half of FY 2014.
“OTOC
is focussed on achieving organic growth in our core resources,
government and surveying markets while continuing to assess acquisition
opportunities to further diversify group earnings and create value for
OTOC shareholders.”
The company expects a continued revenue trend
and consistency of financial performance for the balance of the 2014
financial year ending 30 June 2014.
It continues to evaluate
acquisition opportunities that will add value and expand the group’s
service offerings, geographic reach and recurring revenue base.
OTOC Australia
OTOC
Australia recorded strong revenue and profit growth compared with the
prior corresponding period, with positive contributions from each of the
resources infrastructure, government infrastructure, communications and
facilities divisions.
This growth was particularly pleasing given the subdued market conditions in the North-West WA construction market.
OTOC
considers this performance to be an early endorsement of the group’s
strategy to diversify its revenue base into the government sector (via
the Nauru Processing Centre contract) and into high-margin
communications and facilities work.
Whelans
During
the first half, the group undertook a review of Whelans and implemented
a number of restructuring measures aimed at lifting profitability and
right-sizing the overhead cost base to the size of the business.
Whelans
retains a strong brand and has a talented team of professionals to
drive improved growth and profitability going forward.
Outlook
OTOC works at Nauru have extended and are continuing since its appointment in November 2012.
The
company’s initial contract was valued at $28.7 million, since then a
further $16.2 million variation announced in October 2013.
It
expressed confidence that its OTOC Australia division’s strong execution
capability, incumbent position at Nauru and Federal Government
accreditations will enable OTOC to secure ongoing work at Nauru as well
as other government infrastructure opportunities.
The company
added that while conditions in the North-West construction market have
been subdued, it is well placed to gain market share as certain
competitors leave or lessen their exposure to this market.
It
also expects the appointment of Thomas, a former BHP senior executive,
in early February as its chief executive officer will complement and
deepen OTOC’s relationships with major resource project owners in
Western Australia.
The company’s Communications Division has
grown rapidly in the past 12-18 months with a strong pipeline of work
and opportunities as existing accommodation villages are upgraded to
meet the demands of new technology in the resources sector and to cater
for worker amenities.
It was also recently engaged on the Nauru
Processing Centre to install communications infrastructure and fire and
security systems in a contract worth $5.7 million.
Further
returns are expected from its Whelans business after the roll-out of its
aerial mapping services and technology received a positive reception by
the industry.
Analysis
OTOC Limited’s
strong results with a 148% in operating profit to $4.8 million and a
45% increase to revenue to $73.8 million highlights the strength of its
government infrastructure, communications and facilities businesses.
The
company’s forecast that it will maintain a continued revenue trend and
consistency of financial performance for the balance of FY 2014 is
extremely positive and provides investors stability and a pathway
towards further growth.
Cash at bank of $9.1m (up 145%) and a $8.2m finance facility with Commonwealth Bank provides a solid funding platform to pursue organic growth and strategic acquisitions to keep growth continuing.
OTOC’s
market cap. of circa $25.1 million offers room for expansion with
Proactive Investors estimating a share price target of $0.17 - $0.22
within 6-9 months.
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