Shares in Value Logo
Product Review Img Vertical

Date : 25/08/2021

GR Engineering Services

ASX :

GNG

Market Cap : $234.08 Million

Dividend Per Share : $0.12

Dividend Yield : 7.45 %

Buy

52 Week Range : $0.91 - $1.675

Share Price : $1.61

A stellar performer with consistent revenue boosting contracts. With a 7% dividend yield on top, we recommend a "Buy"

Company Analysis

GR Engineering Services (ASX: GNG) is an engineering consultant that mining, and oil & gas firms can hire for services such as engineering design and construction. Once GNG has been contracted, they will take their client through the entire project life cycle – from evaluations and study to design, construction, and operational support. In a nutshell, they are a one stop shop consulting solution for firms in the mining industry. Their clients range from small and mid-size firms to a few large-scale international mining giants. The firm has operations mainly in Australia, but also has a global presence with Ghana, Mali, Ivory Coast, and the UK operations.

We have covered GNG for a while now and our first Buy recommendation was at a price of $1.10 a share back in October 2020. Today, GNG shares have returned 46.3% to our members and the shares trade with a dividend yield of 5.6%.

Yesterday, GNG announced their FY21 earnings and it was another record result for the mining services company. In 2021, GNG has had 2 guidance upgrades and this has really underpinned the share price action. Following on from their two guidance upgrades, GNG results yesterday even beat their latest upgrade – resulting in a 10% surge in share price.

Results beats 2nd Guidance Upgrade

During FY21, GR Engineering completed 46 studies and as at 30 June 2021, was engaged on a further 30 studies across a broad range of commodities for projects both in Australia and abroad. GR Engineering reported record FY21 revenue of $392.4 million, EBITDA of $37.2 million and a profit before tax of $33.7 million, demonstrating increased earnings from a materially higher revenue base. The firm achieved revenue growth of 76% during FY21 as a result of strong contracting activity and solid operational performance in challenging conditions given the COVID-19 pandemic. During FY21, the Company continued to generate strong operational cash flows and as a result, cash at bank increased by 84% to $69.0 million during FY21.

Throughout the year, GR Engineering continued to achieve significant contract wins from its Tier 1 clients and provided an important contribution to the overall business. The strategic acquisition of Mipac during the year provides GR Engineering with an opportunity to offer advanced standalone control systems engineering, automation and technology solutions to its clients. The post-merger integration process has been seamless to date. Based on GR Engineering’s strong order book and balance sheet, the business is well placed to continue to deliver returns to its shareholders through FY22 and FY23.

Outlook

The entirety of FY21 was characterised by heightened project and operations and maintenance activity across both the mineral processing and oil and gas services businesses. The materials and mining industry was booming and companies have kept production at maximum levels and have consistently invested in new projects to further bolster their production capacity. This has benefited the mining services industry and GNG has been a direct benefactor.

GR Engineering’s oil and gas services business achieved sustained revenue contributions primarily through a combination of operations, maintenance and brownfields projects servicing the coal seam gas (CSG), liquefied natural gas (LNG), carbon sequestration and onshore and offshore oil and gas sectors throughout Australia.

GR Engineering has a strong order book dominated by Australian projects and has been building its pipeline for both FY22 and FY23. The consolidated entity expects revenue for FY22 to be in the range of $440 million to $460 million. FY22 is already off to a flyer for GNG with two new contracts:

  1. On 2 August 2021, GR Engineering announced that it had signed an EPC Contract with Northern Star Resources Limited for its Thunderbox 6 Mtpa Expansion Project. The contract value is $101.0 million.
  2. On 10 August 2021, GR Engineering was appointed as preferred tenderer by Bardoc Gold Limited in relation to the EPC contract for the processing facility and associated infrastructure at its 100% owned Bardoc Gold Project.

Our earlier report can be accessed by clicking here.

Verdict

GR Engineering continues to benefit from the tailwinds that exist in the mining services industry. The company has shown that they can generate massive contracts from Tier-1 companies and GNG operates with a healthy operating margin. The dividend yield is now 5.6% fully franked and the firm’s guidance range already represents a 17% growth in revenues over FY21. We continue to issue a “Buy” recommendation on GNG.

 

Scroll to Top

Login

By submitting this form, I agree to the TERMS AND CONDITIONS and PRIVATE POLICY