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  • Diploma Group Earnings Surge, Profit Guidance On Track 0 comments
    Feb 2, 2014 7:29 PM

    Diploma Group's (ASX: DGX) shares should open higher after it delivered strong first half results for the six months ending December 2013, with EBIT of $3.3 million on revenue of $111.6 million - which is up 34% on the previous period.

    The result was driven primarily from the construction division and is significantly higher than the $0.2 million earnings before interest and tax reported in the previous corresponding period, 31 December 2012.

    Diploma's full-year FY14 guidance of earnings before interest and tax of $7.0 million remains on track.

    In November 2013 Nick Di Latte, managing director, backed himself and also the company to attain earnings guidance by agreeing to a lower salary and staged issuance of shares in the company as the company hits benchmarks.

    The revised remuneration package showed Di Latte's confidence in the company, with today's results supporting that decision.

    Diploma is a long established company - commenced operations in 1976 as a construction business and listed on the ASX in 2007 and it has a core expertise in medium to large innercity development and construction projects in Perth.

    It has won multiple industry awards for excellence and is a recognised industry leader in sustainable design.

    NPAT of $1.9 million

    The group's net profit after tax of $1.9 million represents an increase of 19% for the six months since 30 June 2013, and an impressive 2,507% increase for the same time last year at 31 December 2012.

    Diploma has a positive outlook for new contracts pipeline of $478 million.

    Importantly the company reduced its debt by $11.3 million to $6.8 million during the period, with 93% of this project specific. Diploma also recently completed a $9.1 million capital raising.

    Net tangible assets of the group total $13.4 million which is an improvement of $10.1 million on the 30 June 2013 position.

    Nick Di Latte

    Di Latte, commented: "The result is very pleasing given the hard work and commitment shown by senior management to turn the Company around and improve on the profit recorded at 30 June 2013.

    "The continued profits, recapitalisation of the balance sheet and the current forward order book puts the group in a strong position for FY14, which will enable the company to build on this result into FY15."

    Diploma's strong outlook

    The group continues to work with a number of existing clients and new clients on further third party construction opportunities to the value of $478 million.

    It is expected these works will commence during the latter half of FY14, and run through FY15 into FY16.

    The construction divisions $100m Q3 project for Fraser Property is expected to reach Practical Completion within the second half. The 28 level 275 luxury apartment tower in East Perth is the company's largest third party contract.

    Property division

    Within the property division, there is a combined end value of $250 million (Diploma's share $154 million) and work continues to progress on the groups One on Aberdeen development in Northbridge with construction due to complete in June 2014.

    The $75 million project is 100% presold and is the first of two Department of Housing JV's the company is undertaking.

    The second, Abode in West Perth, is also heavily presold with 82 of the 86 apartments under contract with construction under way on site. Abode is expected to contribute to earnings in the second half of FY15.

    The groups 50% JV in Highgate, 288Lord, has been released to the market with significant presales achieved to date.

    The project consists of 68 apartments and 5 commercial tenancies with an end project value of $36 million.

    Rockingham Residential received development approval in January 2014 and consists of 76 residential apartments with an end value of circa $30 million. This project is adjacent to the groups Quest development. It is expected these apartments will be released to the market in April 2014.

    Diploma is also moving forward with two projects underpinned by the Quest Serviced Apartment Group.

    Analysis

    Today's earning further illustrate the turnaround and growth prospects of Diploma as well as highlight the undervalued nature of its shares.

    Nick Di Latte, managing director, previously backed himself and also the company to attain earnings guidance by agreeing to a lower salary and staged issuance of shares in the company as the company hits benchmarks.

    The revised remuneration package showed Di Latte's confidence in the company, with today's results supporting the decision.

    Di Latte further showed confidence in Diploma last year when he acquired $1,000,000 worth of shares - buying 33,333,333 shares in the company at $0.033.

    Proactive Investors retains its short to medium term share price target of $0.047 - $0.054 based on our estimates of EPS growth.

    Proactive Investors Australia is the market leader in producing news, articles and research reports on ASX "Small and Mid-cap" stocks with distribution in Australia, UK, North America and Hong Kong / China.

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