With reference to my technical write-up on Boustead Singapore dated 23 Jun (click HERE), I pointed out that Boustead Singapore seems to be poised for a bullish breakout. It closed at $0.825 on 23 Jun and subsequently jumped 9% to touch an intraday high of $0.900 on 26 Jul. This compares favourably to STI which generated a 4.0% over the same period.
Another stock, Civmec has recently caught my attention due to its chart development which may portend a potential bullish breakout. It closed $0.805 on 8 Sep.
First of all, let’s understand what Civmec does.
Description of Civmec
Based on its FY23 press release, Civmec is an integrated, multi-disciplinary construction and engineering services provider to the Energy, Resources, Infrastructure and Marine & Defence sectors. Headquartered in Henderson, Western Australia, Civmec has regional offices in Newcastle (New South Wales, Australia), Gladstone (Queensland, Australia), and Port Hedland (Western Australia).
The company is listed on the SGX (Singapore SGX:P9D) and the ASX (Australia ASX:CVL). Its core capabilities include heavy engineering, shipbuilding, modularisation, SMP (structural, mechanical, piping), EIC (electrical, instrumentation and control), precast concrete, site civil works, industrial insulation, maintenance, surface treatment, refractory and access solutions
What is so interesting on Civmec then?
Main basis: chart seems poised for a bullish flag breakout
Based on Chart 1 below, the price action on 8 Sep was interesting on a couple of fronts. Firstly, Singapore market was very quiet especially on 8 Sep and yet Civmec managed to rise with more than twice its average 30-day volume. Secondly, it seems to be on the verge of a bullish flag breakout with a key resistance around $0.800 – 0.805. In fact, it has tested $0.800 – 0.805 numerous times since 15 Aug and this has been accompanied with a rising OBV. Thirdly, indicators such as MACD, OBV, RSI are turning up. Furthermore, all the moving averages which I track (both short and long term) are moving higher. Thus, the overall chart seems bullish.
A sustained break above $0.805 with volume expansion points to an eventual technical measured target price of around $0.935. This is an eventual technical measured target which may not be attained in one go. A sustained break below $0.740 with volume expansion is negative for the chart. It closed at $0.805 on 8 Sep where most transactions are done at $0.805.
Near term supports: $0.785 – 0.790 / 0.775 / 0.760 / 0.740
Near term resistances: $0.805 / 0.820 / 0.840 / 0.860
Chart 1: Chart seems poised for a bullish flag breakout above $0.805
Source: InvestingNote 8 Sep 23
Other interesting factors to note
a) 2 out of 3 analysts raised Civmec’s price targets post FY23 results
Civmec reported its FY23 results on 28 Aug, after market hours. Post results, Maybank Singapore raised Civmec’s target price from $1.00 to $1.05. Based on Figure 1 below, average analyst target price is around $1.14. Coupled with an estimated dividend yield of around 5.4%, total potential return may amount to 47% if the consensus is right.
It is noteworthy that Civmec is also listed on Australia stock exchange. Euroz Hartleys Securities also raised its target price by 25% for Civmec from A$1.09 on 10 Feb to A$1.36 on 29 Aug post Civmec’s results.
Figure 1: Analyst target price $1.14, total potential return approximately 47%!
Source: Bloomberg as of 8 Sep 23
b) Management is positive on its outlook, citing strong tendering activity across all its business sectors
Drawing reference from its FY23 results, Civmec cites “strong tendering activity across all sectors which it operates in. The Group is focused on securing projects that will allow it to grow the workforce at a sustainable pace. Tendering opportunities remain plentiful and the overall business outlook is positive”. Civmec also added that “following the Australian Government’s Defence Strategic Review, they have indicated that an analysis of the Navy’s future surface fleet requirements will be released by the end of calendar year 2023”
In view of the above, Civmec’s outlook seems strong in the foreseeable future.
c) Solid track record – NPAT grows at CAGR of 69% since 2019!
Civmec has an impressive operating track record. Its revenue, earnings before interest, taxes, depreciation and amortization (EBITDA), and net profit (NPAT) have grown at a compound annual growth rate (CAGR) of around 14%, 46% and 69% respectively since 2019! It is also noteworthy that revenue has grown for three consecutive years whereas EBITDA and NPAT have grown for four consecutive years!
d) Ex-dividend A$0.03 / share on 29 Nov; DPS has grown for four consecutive years!
Civmec surprised the market by hiking its FY23 final dividend by 50% to A$0.03 / share. Including the interim A$0.02, total dividend per share (DPS) amounted to A$0.05 / share in FY23. This is approximately 67% higher than its FY22 DPS of A$0.03. In fact, DPS has risen at a CAGR of 63% since 2019. DPS has also grown steady for four consecutive years! Based on Bloomberg, Civmec’s FY24F dividend yield stands at around 5.4%.
e) Net cash company despite being in a capital-intensive industry
Being a construction and engineering services provider, this is typically a capital-intensive industry where most companies are likely to be in a net debt position. However, Civmec has done well in its capital management and has turned net cash in FY23. With its strong cash flow generated from operations and a cash pile of A$70.4m, it is likely to be able to sustain its dividends at least in the foreseeable future.
f) Valuations seem attractive
Based on Bloomberg, Civmec trades at approximately 7.7x FY24F P/E and 1.0x FY24F P/BV. Average 5-year P/E and P/BV are 17.4x and 1.1x respectively. Based on Shareinvestor, Civmec’s NAV / share stands at S$0.745.
As usual, there are risks involved. Due to time constraints, I am only pointing out some of the possible risks.
A) Business risks
Usual business risks such as cost escalations on projects; inability to secure labour; inability to win contracts due to weaker macro environment, slowdown in the industries which Civmec operates in, forex volatility are some of the risks which Civmec has to contend with. Furthermore, although Civmec has been growing its recurring revenue stream by doing maintenance contracts, its business nature still involves contracts which are lumpy. Nevertheless, it is noteworthy that Civmec has an enviable track record of growing its revenue, EBITDA, NPAT and DPS since 2019 which is a testament of management’s capability.
B) Lack of analyst coverage
As a construction and engineering services provider, it is not in the sexiest industries to excite the investment community. As there is a lack of analyst coverage, there may be insufficient information to make a well-rounded investment decision on Civmec. Nevertheless, it is noteworthy that at this moment, my main basis is mostly on chart. I do not really have a thorough understanding of their various business segments yet.
Notwithstanding the general pick up in volume, Civmec is still generally thinly traded. Average 30-day volume traded is only 320K shares per day. As it is thinly traded, chart interpretation may not be fully accurate.
It is noteworthy that there are risks involved such as the aforementioned risks (e.g., illiquidity risk, various business risks; insufficient information etc.). Nevertheless, Civmec’s excellent operating track record in growing its revenue, EBITDA, NPAT and DPS since 2019, coupled with an estimated 5.4% FY24F dividend yield; bright business prospects, and a potentially bullish chart, it may arguably be worth a closer look.
Readers have to assess their own % invested, risk profile, investment horizon and make your own informed decisions. Everybody is different hence you need to understand and assess yourself. The above is for general information only. For specific advice catering to your specific situation, do consult your financial advisor or banker for more information
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P.S: I am vested in Civmec and have alerted my clients early last week on this potential chart development.
**Note: In line with my usual practice of compiling SGX stocks sorted by total potential return at the start of the month, readers who wish to receive my manual compilation of stocks sorted by total potential return can leave their contacts HERE. I will send the list out to readers on 10 Sep 2023 evening.
With this list, it may be a good first level screening to decide which stocks to sell into strength, or add positions on weakness, or rebalance your portfolios. Nevertheless, please refer to all the important notes in the list to ensure you are aware of the limitations of such screens.
Please refer to the disclaimer HERE