Not surprisingly, Perth-based mining contractor NRW Holdings (NWH) has joined the ever lengthening queue of companies from the sector reporting that its revenue and earnings have taken a hit or two from the slowdown in mining investment.
On Wednesday the Australian Bureau of Resources and Energy Economics said 51 mineral projects, 18 gas and petroleum projects and 18 infrastructure projects worth $268 billion had been approved. Of the 87 projects, 11 mega projects worth more than $5 billion each, account for an aggregate $200 billion or 75 per cent of the total committed project value.
Civil construction and contract mining group NRW Holdings ((NWH)) had enjoyed a perfect three-for-three Buy ratings in the FNArena database and this has now expanded to four positive recommendations with Citi initiating coverage today.
Following a fatal accident at Golding's Baralaba North coal mine, operations have been halted pending investigation. NRW Holdings' Baralaba contract represents some 20% of FY19 mining division earnings and extends to 2021.
The company has won the contract for Koodaideri. Deutsche Bank believes the win was already factored in and, although the contract size is close to forecasts, at $150m over 80 weeks it is likely to be a disappointment to consensus expectations.
The company has now won major contracts at Koodaideri and Eliwana. While the combined value is only $104m, Citi is more confident in its FY20 forecasts as a result, as this positions the company to win subsequent work from all three major iron ore producers in the Pilbara.
NRW has won its third contract at Roy Hill, this time for concrete and earthworks. The broker estimates work in hand of $1.1bn in FY14, or 100% of the broker’s forecast revenue. The estimate for FY15 to date is $700m, or 60-65%. NRW boasts a strong balance sheet.
The interim earnings were 9% below the broker’s forecast. Credit Suisse observes the margins were affected by the late ramp up of key projects and low levels of Drill & Blast rig utilisation. The broker maintains a Neutral rating, believing the stock is potentially interesting if it can address the FY16 earnings hole, where Credit Suisse expects a 33% decline.