Research Summary Delta SBD Limited reported NPAT of A$6.2M just 3% short of our expectations. 2H12 EBITDA margins were impacted by one-offs and margins are expected to return to trend in FY13. The FY13 order book which excludes recurring work of A$122M underpins our forecasts. We are not assuming large contract wins until FY14 due to project delays in the face of an uncertain outlook for coal prices. The DSB strategy of buying equipment ahead of winning contracts means that EPS growth will be subdued until the work on new larger projects materialises. In the meantime interest costs will depress earnings. We cannot see a catalyst for re-rating in the next six months and whilst DSB looks cheap it is likely to stay cheap until the ‘go’ button has been pushed on some of the large underground coal projects. Delta will have to wait for the next big job which is unlikely to materialise until the outlook for coal prices improves. We have reduced our 12 month target price from A$1.13/sh to A$0.90/sh and reduce our recommendation from STRONG BUY to BUY.
DSB Price at posting:
80.0¢ Sentiment: None Disclosure: Not Held
