DBS started CSE Global at Buy with a S$0.65 price target, citing expectations oil majors would increase their capital expenditure.
The bank also pointed to smart nation initiatives in Singapore and more infrastructure projects in Australia as sources of growth. They are expected to drive a compound annual growth rate (CAGR) of 15 percent for fiscal 2019-21 earnings, DBS said in a note Friday.
Oil prices have stabilized above US$50 a barrel over the past year, above the around US$40 break even level for many players, with an optimistic outlook for oil demand in the long term, DBS said, adding the top four oil majors are expected to grow their collective capex by a CAGR of around 11 percent from the second quarter of this year through fiscal 2021.
“This bodes well for CSE in providing the support services such as process control systems, telecommunication network, and security solutions for the oil majors and related players,” DBS said.
CSE Global’s focus on more profitable projects in the U.S. and margin-accretive acquisitions will also boost its earnings, the note said, pointing to the acquisition of Volta and its properties, which was announced last week.
DBS added that around 90 percent of CSE’s total revenue is usually recurring, which coupled with a high customer retention rate and strong operating cashflows, should support a consistent dividend of 2.75 Singapore cents a share, for a yield of around 6 percent.
Shares of CSE Global were up 1.08 percent at S$0.47 at 9:50 A.M. SGT.
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