Shares to Buy NRW Holdings (NWH)
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 bigwigs, 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 most blue chip stocks.
In its civil division, NWH’s RGP5 South project, primarily a rail contract, is in alliance with BHP Billiton Iron Ore.
NRW Holdings 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.
NWH’s long-term alliance with these big names ensures the group is never short of work, even during a resource sector downturn.
With the resource sector returning to boom times on a global economic recovery, NWH stands to pick up more lucrative projects with industry leaders in FY11, making it one of the stocks to watch.
First half results
Last month, confirmed that it is on track to achieve an FY11 revenue target of at least $700 million.
However, adverse weather has impacted productivity at a number of NWH’s sites.
As a result, NWH expects FY11 net profit to be at the lower end of consensus estimates between $40 million and $45 million.
In addition, NWH has announced a $70 million capital raising. The issue price of $2.74 is an approximately 4% discount to NWH’s closing price on 13 April.
NWH said it would use the proceeds to moderate its gearing levels following the acquisition of plant and equipment from Comiskey Earthmoving.
For the first half, 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.
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.