Small Caps | 10:45 AM
Duratec’s FY25 results highlight competitive advantages relative to peers in the contracting space, supporting higher earnings and margins.
-Energy and Emerging sectors boost Duratec’s FY25 performance
-Defence sector accounts for majority of revenue
-Margins benefit from niche, higher-value remedial work
-Share price has joined price targets, but Buy ratings do not change
By Mark Woodruff
Engineering, construction, and remediation contractor Duratec ((DUR)) is beginning to see the benefits of expanding into high-margin niches and selectively acquiring smaller businesses.
Broadly in line with guidance provided in May, FY25 results revealed record revenue of $573m, up 3.1% on FY24, despite elongated tender awards and unfavourable weather conditions.
Driven by an average gross profit margin which expanded by 130bps during the year to 18.6%, normalised earnings (EBITDA) rose by 11.3% on FY24 to $53m.
Revenues in the Energy and Emerging sectors stood out, the latter involving Marine, Transport Infrastructure, and Water Infrastructure, respectively rising 77% to $82.5m and 176% to $60.6m.
Positively, most of the growth in these two sectors was achieved organically. While Energy has completed a handful of smaller acquisitions, revenue has since expanded to several times the initial contribution.
The outlook remains strong across both divisions, assesses Bell Potter, with management set to leverage Energy’s relationships with major clients in Western Australia and commence new marine projects in Queensland and Victoria.
Management emphasised its disciplined approach to project delivery, supported by Early Contractor Involvement (ECI) and strong client relationships, which it believes continue to set Duratec apart in high-compliance markets.
ECI refers to a collaborative project delivery model where the contractor is engaged during the design and planning stages, well before full construction begins.
Managing Director, Chris Oates, stated “as we move into FY26, Duratec is well positioned to build on this year’s momentum” and ready to “capitalise on the growing demand across all sectors through leveraging our cross-subsidiary synergies”.
Competitive advantages
Contracting is inherently risky, highlights Taylor Collison, with cost blowouts, weak customer capex, and aggressive competitors often eroding returns.
Strong long-term performance is rare, which makes Duratec’s differentiated offering stand out in the sector.
In this broker’s view, Duratec’s differentiation rests on two factors: its focus on remediation, which is driven by asset wear and ageing rather than capex cycles; and its Materials, Engineering and Durability (MEnD) consulting arm, which adds durability engineering expertise and enables cross-selling as a one-stop solution for asset owners.
MEnD's integration of AI-driven inspection tools and digital defect management enhances Duratec's ECI offering and positions the business as a a leader in predictive maintenace and lifecycle asset management.
Taylor Collison acknowledges Duratec is exposed to revenue lumpiness from the timing of large projects but highlights management’s consistent ability to grow revenues at solid returns on equity (ROI) with minimal loss-making work, making the company an attractive investment.
Segment diversification also provides a healthy buffer, highlights the analyst, as different divisions experience unique conditions.
The company’s broad capability enables Duratec to deliver end-to-end solutions and self-perform technically complex projects, positioning the company strongly in high-value markets such as defence and resources infrastructure.
Duratec’s main Defence division
Headquartered in Wangara, Western Australia, Duratec has 20 branches around the country in capital cities and regional centres. The company specialises in remediation, protective coatings, and structural repairs which prolong asset longevity.
Core services centre on asset protection, remediation of steel and concrete structures, building refurbishments, infrastructure upgrades, recladding, durability engineering, and related construction solutions.
While the Defence division accounts for the largest share of revenue, there was a -17.6% retracement to $181.4m in FY25 on award timing, but margins, nonetheless, improved on mix.
Duratec’s partnership approach is exemplified by DDR Australia, its joint venture with an Indigenous-owned firm, which not only helps win Defence contracts requiring local participation but also advances the company’s ESG and community objectives.
Shaw and Partners notes Duratec’s strong alignment with the Department of Defence positions it as a contractor of choice. The company has been engaged on ECI for three major infrastructure upgrades at Garden Island, a major Royal Australian Navy base, with contract awards expected in FY26.
This broker anticipates Henderson, the shipbuilding and naval industrial precinct located about 23km south of Perth, will provide the next leg of growth.
Henderson is home to the Australian Marine Complex where major naval shipbuilding and sustainment projects are conducted. The precinct supports the Navy, Defence contractors, and offshore energy industries.
Duratec’s largest project to date is the $110m aviation fuel farm construction at RAAF Tindal. Secured in late 2023, this project ramped up through 2024–25 and is a cornerstone of the Commonwealth’s defence infrastructure upgrades.
Additional segments
Other Duratec divisions are Infrastructure, Energy, specialist Building & Facade (B&F) remediation, and Mining & Industrial (M&I).
The Mining & Industrial segment handles asset rehabilitation, maintenance, and shutdown works for resource companies such as BHP Group ((BHP)) and Woodside Energy ((WDS)), to extend the life of processing plants, wharves, and storage tanks.
The company’s expertise in structural integrity and corrosion mitigation has led to significant mining sector contracts. In October 2024, Rio Tinto ((RIO)) awarded Duratec a $44m contract for structural integrity works at the Tom Price iron ore mine in Western Australia.
The company also acquired EIG Australia in 2025, helping bolster its mining sector offering with in-house electrical and mechanical fuel infrastructure capabilities.
Duratec has also been expanding into the infrastructure and energy sectors, applying its remediation and construction skills to civil projects.
Capital Management
Ord Minnett highlights another strong feature of the FY25 result was a 98% cash conversion rate, which supported a net cash position of $48.6m on June 30.
Duratec is well placed to support organic growth and strategic expansions, according to management, ending the fiscal year with $84m in cash (up $18.8m on FY24) and debt facilities of $294m.
The board declared a final fully franked dividend of 2.5 cents, bringing the full year payout to 4.25 cents.
Margins and pipeline
Normalised earnings margins improved to 9.2% in FY25 from 8.8% in FY24 due to improved project profitability and the contribution from the DDR Australia Group.
Agreeing with Taylor Collisons’ view, Bell Potter believes Duratec’s use of Early Contractor Involvement and the technical expertise of its MEnD consultancy uniquely position the company to diagnose issues, design solutions, plan remediation, and execute projects end-to-end, supporting stronger margins.
By self-performing critical remediation tasks (rather than subcontracting), Duratec can control quality, cost, and safety, contributing to improved project margins. This focus on niche, higher-value remedial work has helped Duratec achieve consistent earnings even when new-build construction cycles fluctuate.
Outlook commentary at FY25 results was upbeat, suggests Ord Minnett, with an order book of $390m (at August 2025) and a pipeline of $4.16bn. The order book excludes master service agreement revenues and eight current ECI projects which could contribute a further $500m, the broker highlights.
Certainly, tender activity appears strong to Moelis in the burgeoning Energy segment.
Consequently, Ord Minnett believes Duratec is well positioned to capitalise on its opportunity pipeline and the expected lift in medium-term Defence spending.
Shaw explains the company’s gross margins are supported by a growing base of master service agreements (long-term in nature), allowing the company to deliver higher gross profit margins than the sector average.
The agreements provide reliable, repeat work, and reduce exposure to “lumpy” one-off project revenues, supporting margin resilience.
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