1Q13 ne t profit doubled YoY. AusGroup reported a very strong 1Q13 bottom line of A$6.3m, up 101% YoY. Although this forms only 20% of our FY13F PATMI forecast, we note that the first quarter tends to be the weakest ' 1Q11 and 1Q12 each contributed 16.2% and 13.5% of their respective full-year profits. Revenue was up 26%, with stronger Major Projects and Fabrication segments contributing to the increase.

Much-improved margins. This is the key item we are looking at. The gross margin is up to 14.0% from 12.4% in 1Q12. The EBITDA margin is up to 8.1% from 3.6% in 1Q12, with improvements in Fabrication and Integrated Services segments. We expect Major Projects to deliver better margins in coming quarters.

This has flowed to the bottom line ' net margin was 4.1% against 2.5% in the comparable quarter. Again, we note that net margin in the first quarter of the year has been the weakest in each of the previous two years. Our full-year net margin forecast is 4.2%, and the 4.1% achieved this quarter is a very positive sign.

Growth and recovery picture unchanged. AusGroup has met our expectations in achieving both topline growth and margin improvements, leading to a massive jump in profits. Our forecasts are unchanged ' we continue to expect a bottom line of A$31.4m, up 35% from FY12 record profits of A$23.3m.

Extremely low valuations - EV/EBITDA 2.4x. AusGroup is trading at extremely depressed valuations ' FY13F P/E of 5.8x, P/B of 0.9x, and EV/EBITDA is a mere 2.4x. This is a company that is returning 20.5% ROIC and 17.5% ROE this year ' such poor valuations are undeserved. We continue to value AusGroup at 9x FY13F EPS for a target price of $0.755, backed by a DCF-value of $1.14 at 11.5% WACC. Investors should ignore the recent share price volatility and focus on the fundamentals ' batten the hatches and double down!

  

 Source: OSK