Contruction and engineering firm with 40 years experience, specialising in Infrastructure, resources and renewable energy. Operates Australia wide.

The business enjoyed strong growth during the WA resources construction boom, but revenues dropped by more than half as that surge in work ended. (a reminder: C&E businesses are very cyclical, and competitive -- margins can shrink a lot when work dries up).

Decmil has since broadened into other sector and expanded its geographic reach. It now has a record $900m order book to FY22 and is expecting a continued pick-up in project activity and improving margins.

In the boom years, the company was generating EBITDA margins of ~12%, compared to just 3.7% at present. That's a huge difference, and although its unlikely to see a return to previous levels anytime soon, there's definitely room for improvement.

Back in the resources contruction boom, an EBITDA multiple of 4 -5 was about typical for shares. So in terms of valuation i'm going to say 4.5 is reasonable.

In a recent presentation, the company had a forecast for ~$750m in revenue by FY21. It has $80m in net cash

For FY21, let's apply an EBITDA margin of 5% and an EBITDA multiple of 4.5 -- that gives us a target price of roughly 70c (240m shares on issue). Or an intrinsic value 53c if we discount back for 2 years at 15%pa (I tend to use relatively high discount rates for these kind of businesses, as an added margin of safety)

Under more conservative assumptions, let's apply a 4% margin to $700m in revenue, but keep everything else unchanged. That gives us an IV of 39c

As you can see, there's potential for a lot of operational leverage, and even seemingly small changes to one variable can give a wide array of outcome. If you also start playing around with sales and multiple estimates, the valuation range can get very wide. (i get a 'best guess' range of between 35c and 60c)

Coupled with the unpredictability of the industry, and hence the unprdictability in sales and margins, i'm usually reluctant to invest in these kind of businesses. Market sentiment can also change very quickly.

But, i certainly acknowledge that when the various factors are working together (sales, margins, share price multiples), sharesholders can do remarkeably well.

For example, if the next few years play out even a little better than the company hopes, and market sentiment becomes more favourable for this sector, it's not hard to justify a current valuation of >80c (77% upside from current price).

I could tighten my valuation if i was closer to the industry and business, so would definitely welcome any other perspectives.