Western Australia based Diploma Group (ASX:DGX) has finalised a contract worth $23 million to construct 86 apartments in West Perth.
The West Perth project is already 93% pre-sold and reflects the lack of supply in the area as well as affordable apartments model that Diploma Group employs.
The eight level development at 6 Campbell Street includes the construction of 86 apartments plus basement car park where works have begun on site with practical completion expected in February 2015.
This takes Diploma’s order book to $163 million to be completed over the next 18 months. It also shows Diploma's turnaround and growth phase is underway.
This contract follows Diploma's $72 million first joint project with the Department of Housing on Aberdeen Street in Northbridge, known as "One on Aberdeen."
This 168 lot development is all but presold and is midway through construction, and due to reach roof level next month with completion expected in May 2014.
Diploma Earnings Exceeds guidance FY13
Earnings earnings was exceeded for the full year FY13, with earnings before interest and tax of $3.5 million, which was 40% above the mid-range guidance of $2.5 million.
Net profit after tax was $1.6 million on revenue of $163.4 million.
Working capital improved significantly by $24 million from the same time last year.
In addition, net debt repaid during the year totaled $9 million with a further $4.86 million reduction occurring subsequent to year end reducing total corporate debt to $13 million.
Of the $13 million, an amount of $7 million is classified as non-current and $6 million as current. A total of $4 million of the $6 million current liabilities are project facilities that will be refinanced into construction facilities over the coming months.
Prima on Diploma Group
- Long established company – commenced operations in 1976 as a construction business
- Exiting a non-core business in the Middle East
– Sold off pre-GFC development inventory
- Diploma will be in a position to win additional work and focus on earnings stability
– Will compare favorably on accepted investment metrics to others in the sector
- Has a significantly lower risk profile with an improved balance sheet and net asset position
Analysis
In 2012/13, Diploma Group's managing director Nick Di Latte set out to return the company to profits by FY 2013 - this was done.
In fact, there is an earnings guidance for net profit after tax for FY 14 of $4.5 million. Which would place Diploma Group on EPS of $0.029 and a forward price earnings multiple of a miserly 1 x earnings, which indicates the extreme undervalued nature of the shares relative to its peers.
The other objectives were to reduce corporate debt, pare the cost base and secure new construction opportunities - these were accomplished.
With the Top 20 holding around 80% of issued shares, the stock is leveraged to earnings growth.
Now when a director or MD steps up and acquires $1,000,000 of shares in his company, it should ring a bell. Di Latte bought 33,333,333 shares in Diploma Group in September at a price of $0.033 per share.
Which is also interesting as this would all seem to show that Diploma is, based on profits, more likely to pay a dividend in FY14, lifting the share price growth prospects even more.
Proactive Investors has a short to medium term share price target of $0.047 - $0.054 based on our estimates.
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