Tag: MND

Following the recent underperformance of the share price, UBS upgrades to Buy from Neutral. The broker expects Monadelphous to return to sales growth in FY20 as it transitions into iron ore replacement and sustaining capital projects from LNG construction.

UBS updates its database for iron ore capital expenditure, now estimating total investment in Western Australia could be around US$21bn. This expenditure is expected to be delivered through FY19-22.

Management has guided to first-half revenue being down -10% versus the prior corresponding half. Deutsche Bank had been forecasting a decline of -15%.

Deutsche Bank was disappointed with the FY18 results, noting a severe earnings hole is emerging in FY19. While the company exceeded FY18 revenue guidance, the broker believes the expectation for construction revenue to decline in FY19 implies double-digit declines in earnings.

Macquarie now forecasts a -16% decline in the company’s FY19 construction revenue, given the low level of wins this year and the time lag for new work flowing through to revenue. The Ichthys work should largely be completed by June 30 and the focus is now on the replacement of around $300m in revenue run-off in FY19.

The company has been awarded a $600m contract from Woodside ((WPL)) to provide asset maintenance services at the gas production facilities in Western Australia. The contract is for five years and has a further two 1-year extension options.

First half results were broadly in line. Morgans notes market conditions remain difficult with pressure on revenue and margins, particularly in engineering and construction. This is somewhat offset by maintenance and industrial services.

The 55/45 JV between Monadelphus and ZEM Energy has won the contract to provide civil and electrical works in construction of the Sapphire wind farm in NSW. It’s a positive for Mona, the broker suggests, demonstrating the company’s ability to participate in a large pipeline of renewable projects planned over the next few years.

Monadelphous management warned of challenging conditions ahead in Resources and Energy at its AGM but noted a solid level of spending is still required to sustain ongoing production increases, particularly in iron ore and CSG. But this spending is late-cycle, the broker notes, and oil & gas is set to drop off as the likes of Gorgon and Ichthys reach completion.

The engineers & contractors sector received a significant valuation re-rating post reporting season, with an average doubling of price/earnings multiples, Deutsche Bank observes.

The engineers & contractors sector received a significant valuation re-rating post reporting season, with an average doubling of price/earnings multiples, Deutsche Bank observes.

UBS expects the future revenue profile will drive the share price over the next 6-12 months. Both revenue and earnings fell significantly in the first half but were ahead of the broker’s forecasts. While the downside appears limited the broker observes few positive catalysts on the horizon.

The company has demonstrated the quality of its business to UBS over the cycle but the current operating environment is challenged, accentuated by recent commodity price movements.

FY15 results were below the broker’s expectations.

It’s a convoluted story but the bottom line is there is a dispute between Mona and related parties to the Wiggins Island coal export terminal contract, for which Mona is 50% of a construction JV. Claims and counterclaims seeking monies are underway but Mona is confident and does not expect any material impact on FY15 earnings, the broker notes.

The company will buy the contracts and net assets of Water Infrastructure Group for $6m. The acquisition makes strategic sense to Deutsche Bank, by increasing the company’s exposure to non-resource markets.

Mona has guided to a 15-20% drop in first half revenue, which is what the broker expected. The full-year will depend on new contract wins and timing, amidst stiff competition for ever fewer projects. Management will focus on maintaining margins through cost cuts and productivity gains.

Monadelphous has guided to first half revenue being flat and FY14 below FY13. The company did not quantify this and Citi suspects the assumptions underpinning the guidance could prove slightly pessimistic, given a longer-than-expected tail on some projects.

Citi rates the stock as Sell

Citi rates the stock as Neutral –

Target $21.00 (was $20.50). The broker notes AGM commentary settled on management talking about increasing levels of demand, with a large number of major contracts all ramping up at around the same time. 1H revenue is now expected to be up 40%, with the FY now expected to see 25% revenue growth.

Citi has initiated coverage on Monadelphous with a Buy call and $23.23 price target, noting record levels of capex investment in iron ore, coal and LNG should ensure strong growth in engineering construction and maintenance services.

Target $22.00 (was $21.25). A 1H guidance from management has come in well above the broker, who moves to lift FY12-14 EPS estimates by up to 6%.

Recent share price weakness has created an opportunity in the broker’s view and so rating is upgraded to Buy.

Recent contract wins add to the broker’s view FY12-FY14 will be strong for the company, with earnings growth above system expected across all three years.

Monadelphous delivered an in-line FY10 report plus management was only cautiously optimistic about the immediate outlook, but RBA analysts believe investors should ignore the doubters and the nay sayers. All this company needs is an increase in activity among its customers, and that’s going to happen, assure RBS analysts.