Clough Limited

Friday, August 27th, 2010

Earlier this year a corporate deal structured between two Western Australian companies raised eyebrows and caused many market commentators to criticise management and subsequently ignore the potential strengths of both businesses. These two companies were Clough Limited (ASX:CLO) and Forge Group Limited (ASX:FGE). Now the dust has settled and the deal has been completed we can revisit these companies and assess what value, if any, has emerged. Since the deal was completed FGE’s share price has rallied significantly whilst CLO’s has gone backwards. Did CLO get the bad end of the deal or has the market just forgotten about it due to the explosive growth of their junior partner?

CLO was established in 1919 and seeks to deliver an integrated engineering, procurement and construction management service (EPCM) primarily to oil and gas projects in Australia, South East Asia and the US. The Group’s services range from concept development through design, construction, installation, commissioning, operations and maintenance. With the recent boom of gas projects being proposed and developed in both Western Australia and Queensland, CLO appears to be in a prime position to capitalise over the upcoming years.

The recent boom has seen CLO’s order book rise significantly over the course of FY10. Work in hand increased more than 150% over $1B during the year. A large proportion of this increase was due to a significant contract win for Gorgon. During the year, CLO completed 3 major EPCM projects:

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