Forum Topics DUR DUR FY25 Guidance

Pinned straw:

Added 4 months ago

While I didn't attend the $DUR AGM today, I've noted they have issued guidance as follows:

  • Revenue: $600-$640m (FY24= $555.8m), so +11.6% at midpoint
  • EBITDA: $52-$56m (FY24 47.6m), so +13.4% at midpoint


Updates on portfolio (compared with FY24): are Orderbook $409m ($405m), Tenders $1500m ($1400m), and Pipeline $4.1bn ($3.8bn).

Note the Orderbook excludes annuity-style MSA work, which is becoming more important over time.

My graph below showing as % of revenue, with "AGM" based on the FY25 Revenue Guidance midpoint.

My Assessment: Steady as she goes.

Disc: Held in RL and SM

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Karmast
Added 4 months ago

I just rewatched the DUR AGM which is now up on the company website and had a few key takeaways -

  • On the governance side, they are still playing Auskick rather than AFL. Fair bit of work to do and the Chair seems out of his depth if they keep progressing to an ASX300 and then ASX200 company. I'll be trying to help them with those issues over the next year or two and the good news is management seem to be open to suggested improvements.
  • Newish CEO Chris Oates seems to be finding his feet in the top role now and the relationship with previous CEO Phil Harcourt who is now on the Board instead appears strong. So we hopefully have a smooth transition happening here.
  • They collectively sold down 10% of their shares last FY (but the Founders still hold 30% of the company). I asked about any plans to sell this year and no more selling was planned at this point.
  • The joint venture with DDR seems to have improved a lot and they had a strong year. They were also upbeat about the prospects for DDR going forward.
  • MEnD continues to be a competitive advantage and one of the key reasons they have so few loss making projects.
  • They were also very optimistic about FY25 in general, with Chris Oates sharing at the end of the meeting that they were very confident based on the current order book and pipeline.


So overall, business as usual and they seem to be making steady progress in line with the past few years.


18

mikebrisy
Added 4 months ago

Thanks @Karmast - I wasn’t aware the AGM video was available. I’ll add it to my watch list for sure.

And just to clarify for StrawPeople unfamiliar with $DUR, DDR: it’s not the IT distributor! It a majority Aboriginal-owned construction and project management firm in which $DUR has a 49% stake.

Nice angle on MEND linking it to lower risk pricing. If that’s true (and it seems highly plausible for their type of work) then it lowers the earnings risk profile. Nice pick up.

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Karmast
Added 2 months ago

@mikebrisy

Interesting article and interview with CEO Chris Oates published in the Weekend Australian below. Provides a bit more detail on how Duratec is positioned to capitalise on the AUKUS deal and the work they have before them at HMAS Stirling naval base in WA.


AUKUS CREATING BIG WAVES ON GROUND

by ERIC JOHNSTON


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It’s often said that during a gold rush it’s better to be the one selling the picks and shovels than doing all the digging. And that’s how one small Perth-based engineer is riding the big shifts in global politics.

Duratec has largely flown under the radar since it listed on the ASX late in 2020. There’s a good reason why. The work that Duratec and its specialist builders and engineers do is usually out of sight, hard to get to, and very often underwater. Its hundreds of marine specialists have been quietly going about their business of building and strengthening wharves for Western Australia’s iron ore miners and gas exporters. In other areas, the engineer has been going about the business of ripping out and replacing flammable cladding on high-rises across the country. Then there’s the day-to-day work of welding, repairs and other necessary things needed to keep the heavy machines and plants running across WA’s mining sites.

However, over the past decade, Duratec has slowly but surely gained ground in the business of defence. Now it’s the waves of geopolitics that are starting to be felt by businesses such as Duratec and even names like Lendlease at the bigger end of the scale. In this case, the AUKUS agreement is aimed at – eventually – delivering Australia its own fleet of nuclear submarines. The construction and support represents a major retooling of the nation’s industrial base.

This week senior US politicians on both sides of the divide said the AUKUS security pact was a model for how the US should engage with allies around the world. The nuclear-powered Australian subs might still be decades away, but there’s $8bn of work linked to AUKUS to be done right now in Perth. Much of this is getting HMAS Stirling, the Garden Island naval base south of Perth match fit so UK and US nuclear-powered submarines can be based there from as early as 2027. For Chris Oates, the chief executive of the Duratec, it’s not the boom and bust world of ship building that excites him, rather it’s the everyday infrastructure that’s needed to keep the defence facility in shape. AUKUS will be “game-changing stuff” for companies like Duratec, Oates says.

The Weekend Australian recently caught up Oates in Sydney, just as he was on the tail end of an investor roadshow. He had finished more than three dozen meetings with fund managers and analysts over the week, in a sign the market was starting to take an interest in the $400m engineering group. The reason for Oates’ full diary is simple.

With defence spending to be measured as percentage points of GDP as the AUKUS alliance ramps up, there are few avenues for Australian investors to gain exposure to this. As a builder, Duratec offers additional appeal given it is nowhere near weapons manufacturing or handling – a red flag for most fund managers. Nor are they involved in capital-intensive manufacturing that becomes costly to scale as projects ramp up, crushing margins. The local ownership, security clearances, and a track record of working on highly sensitive sites gives Duratec a headstart when it comes to others pitching for more work. To get a sense of the scale that’s coming, the federal government is slated to spend $56bn on defence this year, including on the newly formed Australian Submarine Agency. Much of the construction work will be sent out to small contractors on the ground. This is forecast to increase to about $100bn annually within a decade, budget papers show. Much of this will be spent be on infrastructure to support the submarines, and investors are looking for a way in.

The lumpy nature of how work is being awarded is also changing, and this means there’s more certainty for smaller players such as Duratec when it comes to securing work. It’s a potential win for the taxpayer, given the long history of cost blow outs on defence projects.

More jobs are being awarded across Garden Island under the early contractor involvement model. This is a fairly novel concept in defence, but has been used widely on mining projects where the contractor is placed alongside a job designer at the beginning. Given there are tight timelines to deliver the defence projects, there is demand to start the construction jobs as early as possible. Essentially, as the project is being designed, the construction contractor works along the way, putting a tender out to the market for steel or cabling or concreting before final designs are finished. This dramatically speeds up work and the designer and the client, in this case defence, get real-time feedback on the cost of the project and can make adjustments around it.

This means that, by the end of the design process, it’s Duratec’s contract to lose when the construction job comes along. “It’s collaboration at its purest, Oates says. “The beauty of that is you can start from day one, because you’re getting paid to build your team through it. There’s efficiency built into the process. “And what happens is you will always get a safer outcome in quality, and you can provide value for money because they’ve got their people on their side interrogating every step. “We’ve always said to them, the earlier you include or involve us in trying to problem-solve and remove those complexities, the better your project would run. “That early contractor involvement is huge in order to build trust. And once you have trust with your client, they’re looking for reasons to give you the job.”

In recent months, Duratec and its joint venture partner, the privately owned engineering group Ertec (a 20 per cent Duratec founding shareholder) have secured two ECI-style contracts for Garden Island. In isolation they are not big dollars, but the bigger jobs that come after the planning phase are Duratec’s to lose. Currently the work represents 100 direct jobs, and that figure is expected to build up to 300. Already the company employs more than 1100.

The first contract involves infrastructure upgrades to support future submarine capability at HMAS Stirling. The second and bigger works involve the delivery of nuclear regulatory compliant facilities to support submarines under AUKUS. Both works contracts are scheduled to start later this year, with delivery by 2027.

Oates says his team is training to become accredited on nuclear builds, which involves upskilling in the UK. This means Duratec will be one of the first companies in Australia and ultimately one of a handful globally that will be qualified to work in the extreme demands of a nuclear environment.

It recently upgraded earnings and revenue forecast for this year. It has a committed forward order book of more than $400m, and $1.5bn of work tendered, but not yet awarded. Lendlease does not discuss specific defence projects, but the builder has disclosed it is doing $4.7bn of preferred defence construction work across NSW and WA, including HMAS Stirling.

Oates brings up Garden Island on Google Maps on his laptop. He points to one thing after another. “We’ve removed a lot of asbestos; replaced panels there. We’ve done fuel upgrades here and run cables out to the wharves. We did that bridge with remediation.” He keeps pointing. “We’ve got an early contract on an extension of Parkes Wharf – that’s a 320 metre extension.”

He highlights another, Diamantina Pier, that will need to be strengthened in order to support the weight of a nuclear sub. Combined, the two wharf jobs have been budgeted to cost about $730m.

Elsewhere, there are pipes to be replaced, buildings to be refurbished, and on it goes. Part of the work requires building several levels of redundancy into anything that will be used to support nuclear-powered equipment.

He then looks at the map in its entirety. “As the AUKUS deal is pushed out to 2040, every year there’s something happening – there’s a lot of work ahead,” Oates says. “Defence will rival our mining industry – I’ve said this to a couple of people, and they all laugh at me.”

24

mikebrisy
Added 2 months ago

@Karmast thanks for flagging this. Good article and puts a bit more meat on the bones of the defence opportunity for $DUR over the next decade or two.

I missed it because I am still in extended summer mode, ploughing through my summer reading, and only keeping half an eye on the market.

14

Strawman
Added 2 months ago

Interesting indeed @Karmast

I just email Chris to see if he's up for another interview. It's been a while since the last one and a lot has happened with Duratec, so it'd be great to get an update.

Speaking of interviews, looks like Alan Kholer is keen to come chat to Strawman members. Which will be cool if we can make it happen. Stay tuned!

btw, if anyone has a CEO/investor they'd like to hear from, hit me up and I'll see what i can do. It's sometimes tricky ahead of half year results, and with a lot of people still in go-slow mode, but I'm keen to get the ball rolling.

Use this forum thread to make suggestions: https://strawman.com/forums/topic/5918

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Solvetheriddle
Added 2 months ago

@Strawman that's Kohler, interesting character, remind me to tell a couple of stories at the drinks

10

Strawman
Added 2 months ago

Oh dear, yes you're right. Looking forward to the catch-up, and the goss!

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