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Early 2019: My original $1.80 price target has already been exceeded. My next valuation of $2.15 - which was based on their various new contract announcements - that we have already seen, and assuming there is more to come, and that the FAL project issues don't hurt NRW very much - has now ALSO been exceeded. Based on their 1HFY19 report + contracts already awarded, I'm lifting my target price to $2.77 now. I am factoring in some new contracts - which would be normal conversion of their tender pipeline into WIH. Just a few sub-$100m contracts over the next 6 months. Any larger $100m+ contracts will likely see another upward revision of this price target.

17-Apr-19: Bugger - they've just passed my new revised, revised, target price. SLOW DOWN NWH! This time, it was on the news that they're entering the ASX200 on May 3rd (replacing TME). I sold some at $2.82 and then some more at higher levels.

17-Nov-19: The new contract announcements for NRW (ASX:NWH) have slowed down somewhat, however they are very busy with a heap of existing contracts, and their FY19 full year report in August was solid, with no surprises. No reason to change my valuation, so I'm leaving it at $2.77.

28-Nov-2019: The BGC Acquisition is another very positive one for NRW IMHO, and is highly EPS-accretive, so I'm raising my valuation accordingly - initially to $2.97, but probably higher still once we get some more news, such as earnings guidance upgrades and/or further new contract announcements.

19-Mar-2020: OK, things have changed somewhat. NWH is down to $1.14 today. Bugger! Or is that a bad thing? Looking at what NWH do, which is contract mining and construction, and what their clients do - many of them are actually gold miners - and that NWH are involved in a number of infrastructure projects for various Australian state Governments now as well, and we should see some fixed-asset infrastructure spending (think: transport infrastructure, particularly train tracks and roads in NWH's case) as part of the stimulus needed to get the economy moving again (once the worst of the medical crisis has passed), and that only a small number of NWH's clients are likely to be seriously challenged by this situation (in terms of whether they can continue on as a going concern or not I mean), NWH has clearly been oversold. They were trading at over $3 in Feb ($3.18 on Feb 21), and they're now down to $1.14. They raised capital recently at $2.85 and that raising was 200% over-subscribed. And now they're $1.14. This is where we can see the effect of fund redemptions. ETFs and other index tracking funds have to sell stock as people cash out, and they have to sell those stocks indiscriminately. It presents some great opportunities, and this is clearly one of those. NWH aren't going broke. No chance. When this situation normalises, even if it takes a year or two, NWH (NRW Holdings) are going to be trading a lot higher than $1.14.

16-Sep-2020: Update: NRW (NWH) are actually a bigger and better company now than they were when they were trading between $2.70 and $3 in April and May last year. They're also the same company that they were when they were trading above $3 in January and February this year. COVID-19 hasn't hurt them. They are doing very well. I am a happy shareholder. $2.97 still looks like a good PT to me. Should get there within 12 months, but I'll give them 18 for a margin of safety.

One thing which people perhaps don't realise is that they do a lot of infrastructure construction work OUTSIDE of the mining and energy sectors, particularly rail line construction, but also roads. If the massive infrastructure stimulus that has been tipped to be in the forthcoming federal budget is indeed there, NWH could well be one of the many beneficiaries of that government spending on infrastructure. Particularly if it involves new rail. Downer EDI is another obvious winner in that scenario, and I also hold DOW. I've been waiting for years for a federal Treasurer and/or an Australian Prime Minister to get serious on big new infrastructure project spending across Australia, and COVID-19 might be the excuse they need to get it across the line this time... hopefully!

18-Mar-2021: Update: Still good. $2.97 is fine. Been above that in Jan and early Feb, and will be back up there again. Might take a little bit of good news to push them past $3 however. Very high quality management team in my opinion. I hold NWH in two of my RL portfolios as well as on my Strawman.com scorecard.

16-Sep-2021: Update: $2.97 is still OK. They had a ripper FY report (in August) - and rose +17.42% on the day (from $1.665 to $1.955) but they've given some of that back, closing at $1.815 today. My $2.97 PT is around +64% higher than where NWH are today, but they were trading at over $3/share in that December-to-early-Feb period (just prior to my last update), and I would argue that they are actually a better company today than they were then, and are worth at least that much. Their prospects certainly have not diminished. It's simply a sentiment thing, and the mining services sector has very poor sentiment around it currently. That will change. $2.97 within 12 months, so by mid-September 2022. I hold this one in two RL portfolios as well as in my SM portfolio.

12-Nov-2022: Update: $2.97 is still OK, and they have been moving up towards it recently. I've been trimming my NWH positions recently too, but I still retain significant exposure to them in my main real life portfolios.

Source: NRW-2022-AGM---CEO-Address--Presentation.PDF

Friday 26th May 2023: This one was marked as "stale" so I've reviewed it, and it's fine, I'm still happy with a price target of just shy of $3. The company's SP rose above $3 briefly at the end of January (2023) and I did trim my positions at those levels, because this is a company that tends to trend up and down for months at a time, so they will give me more opportunities to load up at lower levels.

I believe that there is still significant demand for the metals and minerals that NRW's (NWH's) clients produce, and that demand is going to increase for the most part, over time, not diminish. As one of Australia's leading mining services contractors, as in companies that do the actual mining on behalf of the mine owners, NRW is well placed to continue to benefit from that demand.

Additionally, due to some very smart and well-priced acquisitions over the past 5 years they have succesfully expanded across to Australia's east coast (through Golding, who were already well established in the east) and they now work right across Australia. And they have a division that does EPC and EPCM work (Engineering, Procurement, Construction, and project Management), as today's announcement highlights: Primero-awarded-NPI-contract.PDF

This means they are now directly competing with companies like Monadelphous (MND) who are an engineering and construction company with a maintenance services division. Mono's used to be one of the larger companies in the sector, however NWH's m/cap is now just over $1 billion, and MND's m/cap is only $1.25 billion, so it's certainly conceivable that NRW (NWH) could become larger than MND, because MND are basically a mature company, and NRW are a growing company.

Part of that growth is via acquisitions, which have so far been well targeted, strategic fits, and they have not overpaid, but NRW have organic growth as well. MND sometimes struggle to replace work as it runs off, with new work of the same value. MND rarely make acquisitions and the few they have made over the past 10 years have been tiny compared to their own market cap, and the extra revenue derived from those small acquisitions has NOT been particularly material.

MND tend to win some of the largest EPC contracts on some of the largest projects, but those wins don't come around every year, so their E&C division often has lumpy revenue and earnings from year to year. MND's Maintenance and Industrial Services (MIS) Division IS growing, and MIS does have far more predicatable revenue and earnings, but their E&C (Engineering and Construction) division can drag down their results every now and then.

I have noticed that more recently, and today's announcement (link above) is a classic example of this, that NRW is winning contracts from some of the larger miners (like RIO in this case) where both MND and NRW already work for those miners with various ongoing contracts and both companies have a good history with those miners. I can't imagine that MND did NOT bid for that non-process infrastructure (NPI) work at RIO's Western Range mine site; they both would have bid for it for sure, but NRW won the contract, which says something I reckon.

One of the biggest mistakes that these companies can make of course is tendering for contracts at prices that are so low that while they might win the contracts, they might also struggle to make a profit on those contracts, particularly if things turn don't go exactly to plan; things like Covid outbreaks, tradespeople shortages, wages and salary pressure resulting in unexpected cost increases, material shortages, freight delays, weather events, and cost overruns for any other reason.

NWH made some of those mistakes in that 2009-2011 period, and they almost went broke in 2015, but they learned a lot from that experience and they are a different company now. They don't ALWAYS make a healthy profit on EVERY contract, but their losses are generally few and far between, not usually very material, and for the most part have been either unavoidable, or due to circumstances that could not reasonably have been foreseen. Point is, they are a lot more sensible with their tender pricing these days, and they allow for contingencies, and this includes having their clients share the risks of cost blowouts. These contracts are now structured so that the contractor doesn't have to wear these cost increases alone - the client shares the pain in most cases, or covers a lot of these increased costs. Companies who don't structure contracts in this way usually don't last too long.

I hold shares in both MND and NWH, but I am more excited about the future of NWH, because they are the one that is growing.

Here are some other recent announcements by NRW (ASX:NWH):

27-March-2023: Acquisition--METS-contract-awards.PDF

08-March-2023: NRW-2023-Rottnest-Conference-Presentation.PDF

27-February-2023: NRW-awarded-contract-by-Bellevue-Gold.PDF

16-February-2023: NRW-Half-Year-Results-Announcement.PDF

and NRW-Half-Year-Results-Presentation.PDF

Here's an excerpt from page 1 of those H1 FY2023 Results that they announced in Feb:

They'll be back up and over $2.97 soon enough. And their dividends have been increasing too, which is a nice bonus.

Update: 19-Jan-2024: They keep coming back up to my $2.97 PT.

I'll likely raise that after their half year results are released in February - they keep on performing. They're the quiet achievers in the mining services space - and they are getting more and more work outside of mining now - as today's announcement shows: NRW-named-as-Preferred-Proponent-for-Reid-Hwy.PDF [19-Jan-2024]

Margins aren't high in the sectors in which they work - engineering, construction and mining services - but they have been excellent at risk management in recent years and they have a LOT of work on. NRW (NWH) are now a $1.2 Billion company, so they're a decent sized company, and as I mentioned above, their dividends have been increasing every year since 2018.

Their revenue and earnings can be lumpy because they have a mix of recurring revenue (multi-year maintenance and operations contracts as well as mining services contracts) and one-off revenue (E&C: Engineering and Construction, project work), and their shares on issue (highlighted below in orange) have been growing due to both acquisitions and staff remuneration, however the overall trajectory of their EPS (earnings per share) has been increasing, as shown below, and they have been growing their book value (per share) and their NTA (per share).

Source: Commsec [on 19-Jan-2024]

Other positives are their double digit ROE (second last line above and the graph at the top right (linked by that blue line on the right) which is decent for the industries that they operate in, and their revenue growth. They have grown their revenue every year for the past 7 years and their EPS has been lumpy but trending up (as shown above, top left).

Their gearing (debt level) is low, and they tend to pay down their debt quite quickly, however they do use debt to partially fund strategic acquisitions (they use both equity and debt) so their debt levels can increase when they make acquisitions, but they always pay that debt down at a good clip in years when they haven't acquired anything.

The main two things I like about the company is the growing earnings per share, so despite the growing share count, each share is earning more profit each year, on average - i.e. based on the overall trajectory of their EPS (as shown above) AND their disciplined approach to M&A - every acquisition they've made has been smart and they have not overpaid for any of them. 

As I have said previously, high debt levels almost sent the company broke in late 2015/early 2016, and their share price was trading at around 5 cps in early Feb 2016. This was at the time that the last big mining boom went bust, and NWH had geared up big time for not only all of the work they were winning, but also for a heap more work they expected to win in future years. Back then they were buying earthmoving equipment outright (using debt), thinking the good times were not going to end any time soon. These days, they use equipment leasing a lot more. They have learned a lot of valuable lessons from that period, and they show no signs of making the same mistakes again.

They are now very disciplined with how they use debt, and they always pay it down quickly when the have any (they are often in a net cash position) - and they have intentionally diversified their revenue across more sectors, as well as targeting more recurring revenue through multi-year contracts for either mining services or for operations and maintenance of infrastructure and other assets.

So I love the growing EPS and the strategic and disciplined M&A, and I also love the growing dividends, and the strong balance sheet. I also like the fact that they tend to stay under the radar of many fundies and retail investors, despite them being worth over $1 billion now. They tend to keep a low profile, and that can be a good thing. This is a company that almost went broke 8 years ago and is just out there proving that they're not going to do that again. They operate differently now, as I have explained. And they are letting their runs on the board do the talking.

The company is also trading at an undemanding PE ratio - as highlighted there in dark blue, not as cheap as they were a year ago, but still reasonable value IMO. However I'm not buying up here - I like to buy them at closer to $2.50 or below - and they were down there between March and July this year - so they do seem to provide opportunities to enter or top up positions reasonably often as sentiment waxes and wanes. 

Many people either don't follow them or don't know about them, but if you don't mind the sectors that they operate in (mining services, plus engineering and construction across a variety of sectors such as mining, infrastructure, governments/transport, specialising in rail, roads and bridges) then they are right up there as worthy of serious consideration.

FY23 Full Year Presentation (nrw.com.au)

The 9 images above all have links behind them, so you can click on them to go to different sections of the NRW Website.

(21) NRW Holdings: Overview | LinkedIn

nrw.com.au/wp-content/uploads/2023/10/NRW-Holdings-Annual-Report-2023-Digital.pdf

I hold this company my two largest real money portfolios as well as here.

15-Aug-2024: Update: FY24 Full Year Results:

Have to use a screenshot there as my computer is not allowing me to save Paint 3D images again after I edit them. If you can't read that, NRW (NWH.asx) reported today and made a new decade high price this morning (of $3.53). For context, they have been above this level only once before, a very brief spike above $4/share in 2012 during that big mining boom, but they had expanded rapidly using debt and bought a heap of gear and when the boom went bust they almost went into VA - with their share price getting down below 5 cents/share at the end of 2015 and the start of 2016. They scraped through by the skin of their teeth and are now a much stronger and better company than they were back in 2012. The main difference is that they have a very solid balance sheet, and they lease a lot of equipment instead of buying it all outright, so they are not leveraged to the gills like they were then.

This company was a staple of my largest real money portfolio - which I sold up in June, and they remain a core position in my SMSF - having been in there for years - and I hold them here on SM also. Here are the highlights of today's results for the full year:

NRW delivers another record result in FY24 and expects continued growth in FY25.

FY24 record results summary:

• Revenue $2.9 billion, up 9.2% on FY23.
• EBITDA(1) $334.8 million, up 15.9% on FY23.
• EBITA(2) $195.1 million, up 17.4% on FY23 at a 6.7% margin.
• NPATN(3) $123.8 million, up 18.6% on FY23.
• Cash holdings of $246.6 million, 94.9% conversion.
• Normalised EPS(4) 27.3 cps, up 17.7% on FY23.
• Strong order book of $5.5 billion, (inclusive of repeat business).
• Pipeline of near-term prospects is very solid at $16.4 billion, with $5.5 billion of active tenders.
• Fully franked final dividend of 9.0 cents per share, total FY24 dividend 15.5 cents per share up 11.1% pcp (on a comparable franked basis), 57.0% payout ratio.
• Dividends have been raised every year for the past 6 years (since 2018).

Notes:

1. EBITDA is earnings before interest, tax, depreciation, amortisation of acquisition intangibles and non-recurring transactions.
2. Operating EBIT / EBITA is earnings before interest, tax, amortisation of acquisition intangibles and non-recurring transactions.
3. NPATN is Operating EBIT less interest and tax (at a 30% tax rate).
4. Normalised Earnings per share (Normalised EPS) is EBITA less interest and tax (at a 30% tax rate) over number of shares.

Their 6.7% EBITA margin isn't stellar, but they are a steady earner - not shooting the lights out, but getting on with it. The days of massive margins for mining services companies are done and dusted, those are in the past, the best mining services companies now have low margins but their advantages are that they have a LOT of work (so volume) and it's consistently profitable, and they are VERY good at risk management.

And NRW (NWH) have good management that manage risk very well, are very disciplined and strategic with their M&A (buy well, and always earnings accretive acquisitions that make strategic sense and strengthen the overall business), and are looking after their shareholders with excellent TSRs.

They are no ProMedicus, but they are a consistent company that does what they do well, and keeps growing and providing good returns for their shareholders, since 2016.

At this point, before their share price rise today due to these excellent results, my return here on SM for the NWH shares that I hold here has been +51.77 p.a. - so a return over 50% per year over 6 years - I added them here back in June 2018.

That compares to my +54.41% p.a. return on my PME which I added in Feb 2020 @ just over $20/share.

These returns are money-weighted total shareholder returns, so they include the value of the dividends, but not the value of franking credits. There are different ways to make money - you don't have to jump on a rocket that shoots to the moon (PME) - although that's certainly a good ride when you manage to do it - you can also do it through low-profile, boring, companies that have mediocre margins but just keep making more and more money on more and more revenue, and increase their dividends along with those increased earnings.

28-Oct-2024: Update:

Raising price target to closer to $4, however once they break through $4 with conviction they could go to $4.50 I reckon, but they might take a couple of attempts to break through $4.

Nothing has changed with NRW Holdings (NWH.asx) except that their share price has risen, so they don't look as undervalued as they did a year ago.

Or three years ago:

Plenty of liquidity - $3m worth of shares traded today, being 2,763 trades, and 822,378 NWH shares changed hands.

Nice rise, but I do note that we saw a retrace in 2022 when they went over $2, then again in 2023 when they went over $3 - almost back to $2 again before rising up to $3/share at the end of 2023, but it took 3 attempts to break through $3 with conviction, i.e. they broke through and went on with it in June this year after trying to break through $3 in December '23 and March '24 and failing both times.

There's something about these whole dollar amounts that seems to slow the momentum or makes the market second guess the valuation at the time perhaps.

But look at what they've done since June - $3 to $3.80 in 4 months - plenty of north east momentum at this point.

But they could still have a couple of goes at breaking through $4.

They're a good size now - they're a $1.72 Billion company, so not a microcap any longer by Australian standards, and one of the best run mining services companies in terms of companies that actually do the contract mining, drill & blast, crushing, loading, etc. MinRes is bigger - at $6.7 Billion - and the parts of MinRes (MIN) that are mining services - rather than mine owners and operators - are bigger than NWH, however MinRes is complicated - there are a lot of moving parts - and NRW is both a simpler and more straightforward business in terms of getting your head around it and valuing the business, as well as having superior management to MinRes, in my opinion. So NRW is my main mining services exposure both here on SM and in my real-money portfolios.

NRW also do E&C (engineering and construction), so that division of NRW could be considered to be competing with two of my other larger positions, being Lycopodium (LYL) and GR Engineering Services (GNG), however I don't view it that way, as LYL & GNG tend to specialise in certain types of industrial processes, such as gold mills and other industrial processes where chemical engineering is required as part of the design (engineering) element, whereas NRW are competing more with companies like Monadelphous Group (MND) who do structural engineering and construction along with electrical and pipework. The stuff that LYL and GNG do is more complicated and has higher margins.

So, yes, NRW have skinny margins, but they have a LOT of work, and there are a few different ways to make money; you can do a small amount of high margin work, or a large amount of lower volume work, and still make the same dollars in profit, or more.

Despite their skinny margins, NRW reported FY24 NPAT (Operating EBIT less interest and tax) of $123.8 million, up 18.6% on FY23, on FY24 Revenue of $2.9 billion, up 9.2% on FY23. So their NPAT growth was double their revenue growth - I like that a lot!

Plus June 30 cash holdings of $246.6 million, Normalised EPS (EBITA less interest and tax over number of shares) of 27.3 cps, up 17.7% on FY23, a strong order book of $5.5 billion, and a pipeline of near-term prospects valued at $16.4 billion, with $5.5 billion of active tenders (as at June 30, 2024). 

They have a 57.0% payout ratio and have been raising their dividends every year for the past 6 years (since 2018).

As with all contractors, it all comes down to execution and risk management, which includes building contingencies into contracts so that the contractor doesn't have to wear cost blowouts that are not their own fault, and only chasing profitable work, not lowering prices to almost breakeven levels just to keep busy, and NRW has become a LOT better at that stuff than a few years back when they almost went broke and their share price got down to 4 cents - because most people expected them to go into VA at the time - I can't see that happening to them again - a great number of things would all have to go very badly for them for that sort of scenario to repeat - because their contracts are structured a lot better, they pay their debt down quickly whenever the use debt - usually for EPS-accretive bolt-on acquisitions - and are often in a net cash situation - their net gearing was 12% at June 30.

It's hard to go broke with low or no debt, when you remain busy and profitable.

Commsec has their ROE at 20.4%, so not too bad. That's the highest it's been for 10 years, so that's another positive sign. They are actually getting more profitable as they grow. MND have been going the other way.

That'll do. Nothing much to add since their August report but I managed to waffle on for a few paragraphs regardless. I blame the shiraz.

Disc: Yep, holding NRW Holdings (NWH.asx) shares.