Key Points:

-A high quality national engineering, construction and remediation company with some vertical integration, listed in 2021, current market cap $298m

-Run by the 3 founders with strong shareholder alignment owning over 30% of the company

-High quality, conservative management: average annual growth rate over 12 years of 32%

-Management recently upgraded guidance for FY23: revenue $465-495m (up from $310m FY22), EBIDA $36-39m (up from $11.7m FY22)

Key Business Drivers:

-aging infrastructure eg. wharfs/ bridges

-poor original construction eg water proofing

-expansion of existing assets

-stricter building codes eg fire proof cladding

Key Markets:

-Defence: about 50% of revenue. DUR has a presence on 52 defence bases in Australia. Bipartisan approved 10 year spend. Over 25,000 defence buildings that will need something done. Current big project RAAF Base Tindal aviation refuelling works

-Mining and Industrial: about 25% of revenue. Current big project is Western Sydney International Airport fuel infrastructure

-Building and façade: about 15% of revenue.  Current big project is recladding Central Park Building in Perth

-Energy/ Transport and water: about 10% of revenue. Recently purchased Wilson’s Pipes Fabrication which supply materials to DUR

Business Model:

-Quality rather than a quick fix ie. solid repair solutions

-DUR will do a 3D model conditions survey to tag the engineering problems (they are the only company in Australia doing this), then DUR suggest solutions, sometimes it is put out to tender or they are given the work to complete

-DUR are usually 1 of 2 or 3 competing for this work

-1500 projects in the past year (out of 4000 project they were offered): “It’s the jobs we knock back that make us successful”, Chris Oates GM/Executive director/Founder

Outlook:

-Since mid-may DUR has secured $30m in Mining and Industrial segment work

-Recently upgraded guidance for FY23 (management have a history of upgrading guidance):

*Revenue $465-495m for FY23 up from $310 FY22 (increase 50-60%)

*EBIDA $36-39m for FY23 up from $11.7m FY22 (increase 208-233%)

-Using data from the half yearly accounts net margin likely to be about 4% on a NPAT of $18-20m

-More than double last year's profit result

(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%)

Issues:

-A low margin business.  FY22 net margin was 2.5%

-It is a high cap ex business

-A competitive sector keeps margins down. Their biggest competitor Monadelphous had a net margin of 2.9% in FY22 on a market cap of $1.15Bn. Monadelphous has had flat revenues and EPS for several years and is not showing any growth

Conclusion:

-A quality business performing quality engineering work with highly aligned and quality management

-Growing rapidly

-50% of business comes from defence which is not cyclical and very sticky

-Has a strong national footprint and some vertical integration and is the only one of its competitors doing 3D model generation

-FY23 DUR should earn 8.2c/share. That is based on their guidance which they have a track record of being conservative on. On their current PE of 19.4 the market is assuming EPS of 6.1c.  Should be about $1.59 based on the current PE. This is assuming the market wants to keep DUR at a PE of 19.4