Abigroup's suprising run

This view for a while seemed justified. The company has been plumbing historic lows, reaching $1.50 on 21 June, so why the turnaround now?

We believe it is because the company has grown beyond its status as a contract builder – a status which is not favourably viewed by the market thanks to extreme volatility of earnings. It announced on 9 July that its maintenance division, Abigroup Asset Services, had secured a contract with Yarra Valley Water - its largest ever.

The deal is worth $100m over five years and will see Abigroup employ 120 people and take on numerous sub-contractors in its upkeep of civil, mechanical and electrical systems for the water system that services 1.5m people in the Yarra Valley catchment area.

This contract follows on the success of the Texas Utilities contract that Abigroup won to conduct design, building and maintenance activities for the US giant's gas network in Victoria, which represents over 60% of the State's gas supply.

This shift in the group's earnings means that it is in a far better position to weather cyclical downturns in the construction sector. It also generates improved margins for Abigroup, due to less competition in the maintenance game as a result of the expertise and scale required.

Despite the doldrums the construction industry finds itself in, Abigroup boasts a record forward order book, with $900m worth of jobs in the bag. The company's Asset Services division, which has won $450m in the past 12 months, can claim a large slice of the credit for that happy situation.

Abigroup's reputation for excellence and efficiency, which it has earned on jobs such as the construction of the M2 motorway in Sydney, has also ensured that it has done better than other building contractors in lean times. People always want you when you're the best. That gives us reason to believe that if, as rumoured, governments decide to launch a post-Olympics infrastructure building spree, Abigroup will be one of the front runners in the tendering process.

We have always liked Abigroup, it is a quality company in an unfashionable industry, but even fans like us have been surprised by the company's capacity to do well in tough times. We were anticipating a long period of share price weakness, with prices below $2.00, but we've been proven wrong. Still, the stock is cheap and pays a very attractive dividend yield. We are changing our recommendation, belatedly as it turns out, to a LONG TERM BUY.