Stock to Watch: CLOUGH LIMITED 07:40, Thursday, 13 May 2004
SEASONED WA ENGINEERING GROUP ADDS PROPERTY FOR MORE BALANCE
Sydney - Thursday - May 13: (RWE) ******************************** OVERVIEW ********
Clough, the long time engineering group with its home base in WA has broadened its strategies into the property market to smooth out the troughs in its various activities.
Today the company's prospects are much brighter than this time last year as it fended off the red ink.
The West is booming again through huge Chinese contracts for the state's LNG gas from the North West Shelf and a continuing stream of iron ore from the Pilbera.
Spending in minerals infrastructure, government infrastructure and oil and gas continues to rise and are expected to produce significant opportunities.
Clough provides a complete project development service for leading international clients in the oil & gas, minerals, infrastructure and property industries.
The Group's turnkey services range from complex front-end engineering design and construction to long-term operations and maintenance.
Managing director and CEO David Singleton says "We are pursuing a range of high profile bids worth collectively in excess of $1.5 billion which are due for award over the next nine months.
"Given the nature of Clough’s business we do not expect to win them all but our success rate in being awarded this new business will govern profitability next year," he declared.
But the CEO wants to insulate the company against a multiplicity of contract involvements by diversify into the property as well.
Clough this week reported a new joint venture with Sydney-based Elderslie Property Investments,which has bought seven adjoining parcels of land at Mernda, 30 minutes north of the Melbourne CBD, for a major residential and commercial development.
The Elderslie-Clough JV plans to develop 1500 residential lots on the 77-hectare aggregated greenfields site.
The site also includes about 30,000 sqm of commercial land. Sales are forecast to exceed $220 million over the next eight years.
Mr Singleton said, "The earnings of the property division, coupled with the services division, will form the base to support the re-growth of Clough's contracting business. "The Mernda project is a major long-term development.
"It will underpin our strategic decision to make the property division a much more significant contributor to the group's bottom line than it has been in the past," Mr Singleton declared.
SHARE PRICE MOVEMENTS *********************
Clough shares sold steady at 47c yesterday. Rolling high for the year has been 81c and low 45c. Although the company moved into the black in the first half of this year directors believed it prudent not to declare a dividend at this stage until more improvement was evident. But with forecast of an even better second half the chances of a dividend resumption this year seems quite good. RWE says the stock looks undervalued on fresh prospects.
Clough reported an after tax interim profit of $3.2 million for the six months to December 31, 2003 in contrast to a net loss of $4.9 million in the previous corresponding period.
As indicated late last year, the company’s full year profit is forecast to be higher in the second half of the 2003-04 financial year.
During this period a number of large contracts are expected to be completed.
Group turnover dropped 26.3 per cent to $435.8 million while Clough’s work in hand at the end of the period was $510.9 million, down 57.6 per cent.
The company’s pre-tax profit included an operating loss on Engineering and Construction programs of $2.3 million, including a net provision of $9 million on 2001 and 2002 contracts.
This was offset by profits from the sale of Clough’s interests in the Miitel/Wannaway (Miitel) mines (+$3.9 million) and the reversal of a provision on the valuation of its shareholding in Mermaid Marine (+$3.6 million).
Mr Singleton pointed out that the first half result was also impacted by an estimated $3 million foreign exchange loss on Engineering and Construction programs due to the stronger Australian dollar.
The exchange rate movements had impacted both contract performance, where for example the company had not hedged contract overheads and margins until agreed with the customer, and revaluation of retained earnings in Clough’s overseas subsidiaries and joint ventures.
The company has been taking a more proactive hedging position on most major contracts.
At the same time successful partnerships, joint ventures and strategic alliances have been a key feature of Clough's strategy for growth and diversification.
Clough has formed dynamic partnerships across a broad spectrum of industries with clients and associates who are recognised as world-leaders in their field.
Today, these include joint venture partners Aker Marine Contractors & Clough Offshore Joint Venture; Baulderstone Clough Joint Venture - a joint venture between Baulderstone Hornibrook & Clough Engineering Limited; Clough - AMC Subsea Partnership (CASP); Clough Lucas Joint Venture - a joint venture between AJ Lucas Contractors & Clough Engineering Limited; Clough Seymour Whyte Joint Venture; Kellogg Joint Venture - a joint venture between Kellogg Brown & Root, JGC Corporation, Kaiser Engineers & Clough Engineering Limited; Kvaerner Clough Joint Venture; MPA Energy Services - a joint venture between Pozzolanic Industries & Clough Engineering Limited;
PTSC Clough Joint Venture; Shark Bay Salt Joint Venture - a joint venture between Mitsui Salt P/L, AMP Society and Clough Engineering Limited
Current Alliance Partners are AGL Alliance - AGL Construction, AJ Lucas Contractors and Clough Engineering Limited; Roe 7 Alliance - Main Roads WA, Henry Walker Eltin, Maunsell Australia and Clough Engineering Limited and S & B Engineers & Constructors and Clough Engineering Limited
BACKGROUND **********
Clough originated in 1919 as a building company, J.O. Clough and Son, in Perth, Western Australia.
Clough Group was listed as a public company on the Australian Stock Exchange in March 1998.
It claims an international reputation for excellence in multi disciplinary engineering and construction contracting.
The organisation's early growth and diversification was spearheaded by the success of a number of landmark civil construction and resource development contracts during the 1950s and 1960s.
The experience gained on major civil engineering and infrastructure contracts associated with Western Australia's iron ore boom of the 1960s and 1970s, prompted Clough to pursue new opportunities overseas.
Contracts were secured in the Middle East, Indonesia and Africa and offices were established on Australia's eastern seaboard.
The strategic acquisition, in 1984, of the Petrosea Group of Companies secured for Clough a permanent base in the Asian region.
Onshore and offshore oil and gas developments became a major thrust for the Group in the 1980s and 1990s.
Clough provides turnkey services to the oil and gas, minerals, infrastructure and property industries.
These capabilities are supported by the Group's depth of skill and demonstrated commitment to international standards of quality and safety.
For the past three decades, Clough has nurtured the growth of engineering talent via an undergraduate scholarship programme at universities in Australia and Indonesia.
Logistical strength, technical innovation and a proven track record in remote locations have assisted the company to build its 4000-strong workforce which operates throughout Australia, Asia, the South Pacific, Middle East and offshore Europe.
Innovative engineering and the flexibility to meet changing market conditions have assisted Clough to deliver world class solutions in the most remote and isolated regions of Australia, Asia, the South Pacific, the Middle East and offshore Europe.
It's been a painful ride down from a high of $0.81 last November, perhaps it will now start the hard road back. This could be an opportune time to buy in remembering to keep a tight stoploss.
Let's hope so.
I don't hold CLO
CLO Price at posting:
0.0¢ Sentiment: None Disclosure: Not Held
