Growth Focus: GR Engineering Services Ltd (GNG)

by Patrick Taylor



Date of Data Capture: 30/1/2018

Name: GR ENGINEERING SERVICES LTD (GNG)


Classification: Mining Support Services

Current Price: $1.47

Market Capitalisation: $182M

Forecast EBITDA Growth: 52.54%

Yield Estimate: 6.85%

Consensus Price Target: $1.84

# Covering Analysts: 1 (thin coverage)

Discount at Current Price:
25.17%

Price Target Trend:
 Flat

Signal Timeframe: Monthly-Weekly-Daily

Trend Bias: Up-Down / Long-Short

Indicators:
Short-term: Positive
Medium-term: Positive-Neutral
Long-term: Positive
-Neutral

Recommendation: Buy

Focus: Dividend Income & Capital Growth

Set up Notes:
· GNG fell 75% from 2011 to 2013 before staging a 300% recovery through to 2016. They have since cycled through a minor 30% consolidation (ending late 2017) and now look to be staging a greater recovery here.
·
Fundamental performance has been steadily improving across sales and margins, though profits were softer last year (reflecting their decline in price) but carry forecasting of improving earnings growth through to 2020.
· Technically positive they look exciting here with good momentum seen across multiple timeframes, and this combines well with linear resistance breaking earlier this month, lining up resistance targets at $1.60, $1.80 and $2.00, with support layered in at $1.40, $1.20 and $1.00.


Growth Focus: GR Engineering Services Ltd. (GNG)

Our primary focus here is capital gain, we will select our stocks from the ASX Top 500 All Ordinaries Index.

Over the last few years the commodities markets have gone through some volatile times (none more than the precious metals) and now with a potential new gold rush building up in Western Australia it could be a good time to look at GR Engineering Services Ltd (GNG) who are well placed to ride this emergent wave and could begin to shine once more.

Founded in 2006 and headquartered in Perth, GNG consults and contracts engineering, design and construction services to the resources and mineral processing industry. With operations stretching from Australia to Africa and Europe, GR Engineering has delivered integrated project services in over 20 countries for a vast range of precious, bulk and industrial commodities, though we see the buoyant West Australian mining sector as being responsible for most of the strong forecasting ahead.

Performance over the last few years has been relatively steady despite some challenging conditions, and even though 2017 saw declines in sales and earnings, forecasts for 2018 are strongly positive and show favourable sales and earnings growth through to 2020. It has to be noted that there is only one analyst covering the stock, but with a growing presence in a recovering industry we are happy to look for unrecognised value and good indirect exposure to a sector with excellent growth potential.

GNG Floated on to the ASX in 2011 around $2 before falling around 80% to build a base of support around 40c by 2013 and then rallying back up to test $2 by 2016. That resistance ceiling held strong and forced pricing back to find support near $1.20 before bouncing back and breaking through linear resistance by the end of 2017. Right now we see positive signalling coming through on multiple timeframes and with price action showing good signal correlation, this sets up an attractive entry with historical resistance targets found significantly higher than current pricing levels.

Due to the often extreme volatility seen within the commodities industries there can be benefits to gaining indirect exposure through mining services companies, and with capex increasing for mining exploration and development we think the tide should continue to carry GNG higher. With steady performance and encouraging fundamental forecasts combining well with a solid technical recovery and attractive longer-term set up we think that with GNG we may just be unearthing a bargain.

 

Disclaimer

This report was produced by Taylor Securities Pty Ltd, which is a Corporate Authorised Representative (Number 414063) of RM Capital Pty Ltd (Licence no. 221938). Taylor Securities and Patrick Taylor (Representative number 414064) have made every effort to ensure that the information and material contained in this report is accurate and correct and has been obtained from reliable sources. However, no representation is made about the accuracy or completeness of the information and material and it should not be relied upon as a substitute for the exercise of independent judgment. Except to the extent required by law, Taylor Securities and Patrick Taylor does not accept any liability, including negligence, for any loss or damage arising from the use of, or reliance on, the material contained in this report. This report is for information purposes only and is not intended as an offer or solicitation with respect to the sale or purchase of any securities or financial products. The securities or financial products recommended by Taylor Securities and Patrick Taylor carry no guarantee with respect to return of capital or the market value of those securities or financial products. There are general risks associated with any investment in securities or financial products. Investors should be aware that these risks might result in loss of income and capital invested. Neither Taylor Securities and Patrick Taylor nor any of its associates guarantees the repayment of capital. WARNING: This report is intended to provide general financial product advice only. It has been prepared without having regarded to or taking into account any particular investor’s objectives, financial situation and/or needs. Accordingly, no recipients should rely on any recommendation (whether express or implied) contained in this document without obtaining specific advice from their advisers. All investors should therefore consider the appropriateness of the advice, in light of their own objectives, financial situation and/or needs, before acting on the advice. Where applicable, investors should obtain a copy of and consider the product disclosure statement for that product (if any) before making any decision.