Overview of Civmec Ltd

Maybank Research has prepared an in-depth analysis of Civmec Ltd (CVL SP), a construction and engineering services provider. Civmec operates in sectors such as Resources, Energy, Infrastructure, Marine, and Defence.

Performance Highlights

Civmec reported a stable performance for 1QFY25 with a net profit after tax (NPAT) of AUD15.2 million, aligning with expectations. The company successfully completed the redomicile of its parent company to Australia as of September 4, 2024. This strategic move has narrowed the valuation gap with Australian peers, prompting an increase in the target price (TP) to SGD1.20. However, due to recent outperformance, Civmec has been downgraded to HOLD from BUY.

Topline Growth

In 1QFY25, Civmec’s turnover grew by 7.2% year-on-year to AUD262.7 million, driven by several agreements and contract extensions, along with higher maintenance works. Despite this, the EBITDA margin slightly narrowed due to changes in the business mix and project recognition timing. The order book declined by 6.2% YoY to AUD800 million by the end of September 2024, though management remains optimistic about tendering activity across all sectors.

New Defence Contracts

On October 15, 2024, Civmec entered into a non-binding Heads of Agreement with NVL B.V. & Co. KG (Naval Vessels Lürssen) for the transfer of ownership of Luerssen Australia. This agreement includes the completion of six Arafura Class Offshore Patrol vessels for the Royal Australian Navy. The transfer will enhance Civmec’s capabilities and align it with local manufacturing requirements.

Successful Redomicile

Civmec’s strategic move to redomicile to Australia aims to improve job opportunities and align the company with local content policies, particularly in the defence sector in Western Australia (WA).

Financial Metrics

Key metrics for Civmec include a forecasted revenue CAGR of about 10% over the next three years, driven by a steady order book and recurring maintenance work. The EBITDA margin is expected to improve due to better utilization rates and economies of scale. Civmec maintains a strong net cash position of AUD24.5 million in FY24.

Peer Comparisons

To provide a comprehensive analysis, Maybank Research compared Civmec with its Australian peers including Austal, Imdex, NRW Holdings, GR Engineering Services, Monadelphous Group, Downer EDI, Southern Cross Electrical, and SRG Global.

Austal (ASB AU)

Austal, with a market cap of USD781 million, has a P/E ratio of 79.8 for FY24, which is significantly higher than Civmec’s. Austal’s EV/EBITDA is also higher at 10.0, indicating a premium valuation. The company’s ROE is relatively low at 1.5%, suggesting lower profitability.

Imdex (IMD AU)

Imdex, valued at USD863 million, has a P/E ratio of 27.8 for FY24. The company’s EV/EBITDA stands at 10.9, reflecting its strong valuation. With an ROE of 5.7%, Imdex shows moderate profitability compared to its peers.

NRW Holdings (NWH AU)

NRW Holdings, with a market cap of USD1,147 million, has a P/E ratio of 14.0 for FY24. The company’s EV/EBITDA is 5.5, and it boasts an ROE of 16.6%, indicating robust profitability and efficiency.

GR Engineering Services (GNG AU)

GR Engineering Services, with a market cap of USD235 million, has a P/E ratio of 11.6 for FY24. The company’s EV/EBITDA is 5.7, and it has an impressive ROE of 49.5%, showcasing its strong financial performance.

Monadelphous Group (MND AU)

Monadelphous Group, valued at USD809 million, has a P/E ratio of 19.5 for FY24. The company’s EV/EBITDA is 8.4, and it has a solid ROE of 13.8%, indicating strong profitability and valuation.

Downer EDI (DOW AU)

Downer EDI, with a market cap of USD2,512 million, has a P/E ratio of 19.3 for FY24. The company’s EV/EBITDA is 7.2, and it has an ROE of 3.2%, reflecting moderate profitability and valuation.

Southern Cross Electrical (SXE AU)

Southern Cross Electrical, valued at USD285 million, has a P/E ratio of 20.0 for FY24. The company’s EV/EBITDA is 8.8, and it shows a robust ROE of 11.7%, indicating solid financial performance.

SRG Global (SRG AU)

SRG Global, with a market cap of USD449 million, has a P/E ratio of 14.7 for FY24. The company’s EV/EBITDA is 6.1, and it has an ROE of 11.6%, reflecting its strong profitability and valuation.

Comparison Summary

Overall, Civmec’s valuation metrics, such as P/E and EV/EBITDA, are competitive with its peers. However, its profitability ratios, such as ROE, are slightly lower, indicating room for improvement in efficiency and profitability. Civmec’s strong net cash position and steady order book provide a solid foundation for future growth.

Environmental, Social, and Governance (ESG) Factors

Civmec has a comprehensive ESG framework, but there are areas for improvement, particularly in its qualitative parameters. The company employs various waste-minimization strategies and focuses on staff development and safety. However, the board lacks gender diversity, being composed entirely of males.

Environmental Initiatives

Civmec focuses on reducing energy intensity and emissions. The Henderson manufacturing facility is transitioning to electric-powered forklifts, and the company is incorporating more solar panels to reduce energy use.

Social Initiatives

Civmec emphasizes staff development, with many employees pursuing professional qualifications. The company’s Lost Time Injury Frequency Rate fell to 0.4 per million hours worked, demonstrating a commitment to workplace safety.

Governance Initiatives

The board consists of six directors, including the Executive Chairman and CEO, with independent directors leading key committees. However, the board lacks gender diversity, and there is room for improvement in this area.

ESG Score

With an overall ESG score of 52, Civmec is marginally above average in its ESG performance. The company has clear frameworks and tangible targets, but there is potential for further improvement.

Financial Metrics and Forecasts

Maybank Research provides detailed financial metrics for Civmec, including revenue, EBITDA, net profit, and various ratios. Key highlights include a forecasted revenue of AUD973 million for FY25 and an EBITDA of AUD112 million. The company maintains strong liquidity with a forecasted net cash position for the coming years.

Income Statement

For FY23, Civmec reported a revenue of AUD830.9 million and an EBITDA of AUD105.8 million. The net profit was AUD57.7 million. The EBITDA margin stood at 12.7%, while the net profit margin was 6.9%.

Balance Sheet

As of FY23, Civmec held cash and short-term investments worth AUD70.4 million, with total assets amounting to AUD774.5 million. The company’s total liabilities were AUD353.9 million, resulting in a strong asset-to-liability ratio of 2.2.

Cash Flow

Civmec generated a cash flow from operations of AUD91.6 million in FY23, with a free cash flow of AUD71.7 million. The company paid dividends amounting to AUD20.2 million.

Conclusion

Civmec Ltd demonstrates solid financial performance and a strong market position in the construction and engineering services sector. While the company faces challenges in profitability and ESG parameters, its strategic initiatives and robust order book provide a positive outlook. The comprehensive peer comparison highlights Civmec’s competitive standing, and the company’s focus on sustainability and governance indicates a commitment to long-term success.