AusGroup Ltd: Waiting and watching

Summary: We recently caught up with AusGroup Ltd (AusGroup) management. Its 2Q results exceeded our estimates because of a delayed impact of market shrinkage on ongoing projects and some flow through of conservative variation claims from previous quarters. While we have adjusted our estimates slightly to take 2Q figures into account, we still expect significant contractions in 2H09. We have previously commented on AusGroup’s growing pains since FY08 as it transformed itself into a multinational and multiplatform business. The company is finally showing some signs of “growing up”, in our view. The global economic environment is still very uncertain. We stay cautious on revenue and margin estimates and will track the company closely in the months ahead. We maintain our HOLD rating on AusGroup. Our new fair value estimate is S$0.16 or 4x FY09F earnings (prev: S$0.17).