Kentz off to strong start

Specialist resource engineering and construction services group, Kentz, is off to a healthy start this year and anticipates a full-year performance slightly ahead of expectations. This news prompted analysts at Investec to upgrade their EPS estimates for 2012 by 5 per cent to 56.1¢, up from 50.6¢ in 2011.

The broker notes that over the past month Kentz's shares have been de-rated in line with the sector as the oil price and equities have taken a beating, making them increasingly attractive trading a third below fair value targets of 600p. We agree as the shares, at 367p, are priced on less than 9 times 2012 earnings estimates net of cash which is more than a 20 per cent discount to the sector average.

The investment case is further supported by a record project backlog of $2.46bn (£1.55bn) at the end of April, up from $2.4bn in December, with new orders and natural growth more than offsetting completed work. Kentz typically sees an average of 25 per cent natural growth on contracts year-on-year and management has confirmed they see this trend continuing in 2012, following significant contract wins in Australia and Canada.

It's also worth noting that nearly 66 per cent of the existing backlog comprises low-risk 'reimbursable service contracts,' versus 60 per cent at the year-end, leaving Kentz less exposed to the provisioning that has recently hit competitors. The pipeline of prospects is healthy, too, up $800m to $10.8bn since December, with Kentz currently bidding on several new contracts for liquefied natural gas projects in Australia. Africa and Canada should continue to be key growth regions while Iraq represents the largest single opportunity in the pipeline, though Kentz remains cautious on timelines as operators address security concerns.