Duratec Limited

ASX:DUR

Duratec Limited

ASX:DUR
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$1.105 (-3.9%)
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#47
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Forum Topics DUR DUR #Low net margins

Pinned straw:
Shapeshifter
Added 11 months ago

I've been looking at Duratec and I like what i see. An excellent company doing excellent engineering run by excellent management.

My major concern is the low net margins of the business. These margins have fallen from a pre-COVID 5.5% in FY18 down to 2.5% in FY22.

This is a question for @Karmast who seems to know this company well. What is your take on this? Is this COVID effecting costs? Do you think these margins will rebound for FY23?
Shapeshifter
11 months ago

Just partially answering my own question.

Duratec has guided for FY23 revenue of $465-495m and an EBITDA of $36-39m. Based on their previous EBITDA to NPAT conversion this would be a FY23 NPAT of about $23-25m which equates to a net margin of about 5% (23/465).

So yeah net margins should double in FY23 according to calculations.

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Shapeshifter
11 months ago

Refining my calcs again (this is strawman after all and any one else is free to bash my numbers!) using data from the half yearly accounts net margin likely to be about 4% on a NPAT of $18-20m.

Still more than double last year's profit result and improving margins.


(I got here by using EBDITA guidance of $36-39m. 1HFY23 NPAT conversion was 7.85/15.6 = 50%. Therefore expected NPAT for FY23 of about $18-20m. This is a net margin of 18/465 = 3.9%)

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Karmast
10 months ago

Hi @Shapeshifter

I think your math looks pretty good to me and yes I am expecting margins to improve this year. That said they will probably stay in the 3% to 5% range longer term I suspect as its a competitive industry. Major competitor Monadelphous used to sit around 5% and is also now at 3%. Duratec might be at the higher end of the range though as they have the drone and laser scanning technology reducing risk and they are also smaller and more picky about the work they are taking on.

A margin in the low single digits, assuming sustainable (and I think it is for them) can be a moat as it's not super attractive for new players to enter.

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