http://www.psl.com.au/research/your-market-daily#RQLResource...

http://www.psl.com.au/research/your-market-daily#RQL

Resource Equipment Ltd (RQL) - BUY

Activity gathers momentum

* RQL has provided an activity update confirming that record levels of new work is currently being secured. Earnings are also exceeding expectations within the recently acquired Dewatering Services Australia (DSA) business. As such, we are confident RQL will deliver on our FY11 forecasts and believe FY12 will start on a high note. Our positive investment thesis remains unchanged. We have increased our price target to $0.82 (from $0.76).
* Activity update key points:
o Over $12m of new projects secured
o Several new potential projects at various stages of negotiation
o DSA acquisition exceeding expectations
o FY12 revenue growth of at least 30%
o Scope to exceed current FY12 consensus forecasts
* FY11 result a given, FY12 to start on a high. We are confident RQL will deliver on our FY11 forecasts and expect a strong start to FY12. A significant portion of the $12m+ new work will be incurred in FY12. This is on top of circa 75% of recurring work. As such, we believe RQL can continue on the strong growth path implied by our forecasts.
* FY12 forecasts unchanged. We have made no changes to our FY12 forecasts as we already imply 42.3% revenue growth ($69.4m) and 39.2% EBITDA growth ($24.4m). This compares to management commentary of FY12 revenue growth of at least 30%. Management also noted that they are 'certainly capable of exceeding' the current FY12 consensus forecasts (revenue of approx $65.0m and EBITDA of approx $23.0m).
* DSA expanding to the East Coast. DSA is currently quoting on work in the Queensland coal sector with existing RQL clients. Securing such contracts will go a long way to justify the inherent benefits of the DSA acquisition. If DSA successfully expands its offerings on the East Coast, we believe there could be scope for upside to our FY12 forecasts.