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
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 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.
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.
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.
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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