Shares to Buy NRW Holdings (NWH)

NRW Holdings ASX NWHNRW Holdings (NWH) provides a diverse range of specialist services to Australia’s mining and resources organisations.

NWH’s business units are split into four divisions: Civil, Mining, Action Mining Services and Action Drill & Blast.

The group’s head office is located in Perth, with branch offices spanning Australia and West Africa.

NWH’s clients are sector blue chip stocks, including BHP Billiton, Rio Tinto and Fortescue Metals. The group’s lucrative contracts over FY10 offset resource sector shakiness, and FY11 is looking to be a stronger year on increased resource sector activity.

Recently released first half results have already reflected inherent strength with profit jumping over 30%.

Resources return to strength

NWH may not be a famous industry name, but its clients are amongst the resource sector’s biggest names.

In its civil division, NWH’s RGP5 South project, primarily a rail contract, is in alliance with BHP Billiton Iron Ore.

NWH is also carrying out port infrastructure and mine site earthworks for CITIC Pacific Mining at Cape Preston, working on the Christmas Creek Rail project for Fortescue metals, and assisting Rio Tinto with Hope Downs, the Western Turner Syncline project, Simandou and Tom Price Mining.

NRW Holding’s long-term alliance with these big names ensures the group is never short of work, even during a resource sector downturn.

The resource sector has returned to boom times owing to the global economic recovery, and NWH has been one of the shares to buy since June last year.

Furthermore, NWH stands to pick up more lucrative projects with industry leaders in FY11.

First half results

Last month, NWH confirmed 1H11 revenue of $358.3 million, up 30% on a year ago.

Net profit grew 31% to $20.4 million whilst the group declared a half dividend of 4 cents per share, up from 3 cents last year.

NWH said the result was driven by an improved performance in the civil, mining and the drill and blast divisions.

The group’s balance sheet is in a strong position with a cash balance of $40.9 million and net debt of $14.9 million at 31 December 2010.

The company says it is well placed to achieve its minimum revenue target of $700 million, representing 15% growth on FY10.

However NWH’s previous guidance outlined expectations of a 15% – 20% growth in revenue for the full year.

Looking ahead

NWH has a significantly improved cash position in 1H11. Combined with its improved gearing position, NWH has plenty of capacity for future growth.

NWH’s balance sheet is thus in good shape to underpin expansion opportunities and growth.

The value of secured revenue for FY11 is currently $643 million which is 92% of its minimum FY11 target of $700 million.

NWH will be looking to diversify its revenue base as it aims to create a $1+ billion plus order book.

The group has a balance of order book value of $226 million for FY12 and $194 million post-FY12, and is now focused on benefitting on a resource sector recovery with a wide range of civil, mining and oil and gas clients demanding NWH’s services.

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