Duratec (ASX: DUR) Surges on AUKUS Contract Progress: Is This Defence Stock a Buy?

Duratec Poised for Growth with AUKUS Contracts

Duratec (ASX: DUR) has quietly become one of the standout performers in Australia’s small-cap defence space, with shares climbing approximately 49 per cent over the past 12 months to reach AUD 2.04. The latest catalyst driving investor interest is the company’s joint venture with Ertech, which has been instructed to proceed with early procurement of approximately AUD 5 million worth of long lead items for AUKUS-linked infrastructure upgrades at HMAS Stirling naval base in Western Australia. With an estimated AUD 8 billion in spending expected at Garden Island over the coming years to prepare for US and UK nuclear submarine rotations starting late 2027, Duratec’s long-standing presence on site since 2015 gives it a meaningful head start over competitors.

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Why Duratec Is Positioned to Win Big From AUKUS

What makes Duratec’s position particularly compelling is the nature of how major defence contracts are awarded. The company is currently working on Early Contractor Involvement (ECI) phases, but this is where the real opportunity lies. In defence construction, ECI contracts typically serve as gateways to much larger project awards, often 10 to 20 times the initial value. Duratec expects the main contract award and commencement in the third quarter of FY26, with a second contract for nuclear regulatory-compliant facilities to follow.

The strategic importance of Garden Island cannot be overstated. As the primary base for Australia’s future nuclear-powered submarine fleet under AUKUS, the facility requires significant upgrades to accommodate visiting US Virginia-class submarines and, eventually, Australia’s own SSN-AUKUS boats. Duratec’s decade-long track record of maintaining and upgrading critical infrastructure at the base positions it as a known quantity to Defence, reducing both commercial and execution risk in the eyes of procurement teams.

Duratec Delivers Steady Growth Across Defence and Mining

Beyond the AUKUS opportunity, Duratec’s underlying business continues to perform well. The company reported FY25 revenue of AUD 573 million and normalised EBITDA of AUD 53 million, with EBITDA margins improving to 9.2 per cent from 8.6 per cent the prior year. This demonstrates consistent execution across its diversified portfolio spanning defence, mining, energy, and building sectors.

The forward pipeline looks healthy. Duratec’s order book sits at AUD 386 million, while its active tender book sits at AUD 1.84 billion, within a broader project pipeline exceeding AUD 4.65 billion, suggesting management sees substantial opportunity ahead. The company also ended FY25 with AUD 84 million in cash and recently increased its banking facilities by 69 per cent to AUD 294 million, providing firepower for organic growth and acquisitions. For income-focused investors, the fully franked dividend yield of approximately 2 per cent adds a modest income stream.

The Investor’s Takeaway

For investors weighing Duratec at current levels, the bull case centres on AUKUS providing a multi-year tailwind that is only just beginning. The AUD 4.65 billion total project pipeline and entrenched position at HMAS Stirling support this view, with management expecting significant contract awards in FY26.

However, the strong rally has pushed the stock above several analyst price targets. The consensus target sits around AUD 1.90 to AUD 2.10, meaning limited near-term upside at today’s price of AUD 2.04. Trading on a price-to-earnings multiple of around 17 to 22 times, the valuation is not stretched but no longer cheap either.

Our view is that Duratec offers genuine exposure to Australia’s AUKUS defence spend, but patience may be rewarded. For those already holding, the long-term thesis remains intact. For new investors, waiting for a pullback towards AUD 1.75 to AUD 1.85 could provide a more favourable entry point, though the stock may continue climbing if major contract announcements accelerate through 2026.