FWIW UBS have released an "Australian Engineering & Construction" research report which covers a number of companies in the space (ALS(neutral), DOW(neutral), MND(neutral), SVW(buy), WOR(buy), IMD(buy)) as well as NWH - note their "top picks" were Worley, Seven Group & Imdex

NRW Holdings

Buy rated. 12m price target A$3.15/sh

UBS View: We are Buy-rated on NRW, on the basis that we see the stock offering solid earnings leverage to the upcoming resource capex cycle (i.e. lithium/iron ore). This capex cycle underpins our forecasted +12% 3yr EPS CAGR, which we view as attractive given NRW is trading at a 1yr fwd P/E of 10x vs. LT average of 12x and prior cycle peaks of 16x. NRW and its subsidiary, Primero, have a proven win rate record on Civil Lithium iron ore projects, with the key focus remaining on successfully executing the large pipeline of resource investment

Key takeaways from the FY23 result:

FY23 result in line: NRW delivered FY23 EBITA of A$166mn, in line with guidance of A$162-172mn, and UBSe/consensus A$165mn. The Mining division was the standout (FY23 EBITA +26%) on the back of a strong margin delivery (FY23 EBITA margin 9.3% vs. 2H23 EBITA margin 8.0%). On the negative, the METS division saw an unexpected earnings deterioration in the second half. The division, namely, Primero, was significantly impacted by cost overruns on one of its last remaining fixed price construction projects (Strandline). This drove FY23 EBITA of A$31mn, -37% vs. UBSe

FY24 guidance: As expected, NRW provided FY24 earnings guidance, with revenues to be >A$2.8bn and EBITA of A$175-185mn (UBSe A$185mn). The company also noted that A$2.7bn of revenue is already secured for FY24 (and A $2.5bn secured for FY25, c.90% of cons.). We are forecasting FY24 EBITA of A $185mn, representing 11% growth vs. pcp

DISC: Held in SM & RL

Word is they are moving back to core NRW business and getting out of process plant work. Primero has become a huge issue for NRW.

I assume they will be happy doing the Super Pit upgrade but time will tell.

17-July-2023: NRW Holdings (NWH), one of Australia's largest mining services companies, and one of my favourites (I hold them here and in my two largest RL portfolios, one of which is my SMSF), are keeping busy. Their latest announcement of new work (today) was: Golding-awarded-Toowoomba-Flood-Recovery-South-contract.PDF

$113m in revenue over 15 months. Nothing to sneeze at. And they've been delivering a steady stream of "New work won" announcements - see here: ASX Announcements - NRW Holdings Limited (ASX:NWH)

For anybody who isn't familiar with them, and can handle the mining services sector (I understand many avoid it), NRW Holdings (ASX: NWH) are worth checking out. They are gowing, mostly organically, but also via some smart (reasonably priced or cheap) and strategic acquisitions.

https://nrw.com.au/

Disclosure: I've held NRW shares for years, both here and IRL. They never let me down. Management are the "quiet achiever" types. Not into self-promotion very often, but they get the job done. And they are getting some insto's following them with positive views also now. Not many "Subs", but their market cap is over $1 billion now, so people can get decent exposure without buying 5% of the company. When sentiment towards the mining services sector turns positive again (it must do some day, surely!?!) I don't reckon NRW (NWH) will get left behind. And they've been doing OK even with the poor sentiment surrounding the sector.

They've got everything heading in the right direction. Their net profit margin is low, but that's the new winning business model in mining services these days, low to moderate margins on HEAPS of work. Volume of work is key, and volume is growing, and after a couple of years of dipping margins, NRW's profit margins were increasing again at last report, as shown below:

Oh, and did I mention, they are more than just mining services these days...

03-July-2023: NWH-Primero-awarded-EPC-contract-for-KCGM-Growth-Project.PDF

That's a very nice EPC contract for NRW (NWH) to pick up, worth just under $1 billion ($973m), for NRW's Primero division (Primero being one of their smart acquisitions over the past few years). I have mentioned recently that NRW/NWH is my favourite mining services company that does the actual contract mining for mine owners, and one of the reasons why I like them (and hold them) is because of how they have successfully diversified their revenue into Engineering and Construction, including expanding into civil engineering, road and rail construction (they are big in rail construction here in Australia having done a lot of rail work for some big mining companies) as well as the design and construction of mining infrastructure such as this lot (in this announcement) for Northern Star (NST) - who I also hold shares in.

It's interesting that NRW's Primero division have spent a year and a half working through this with Northern Star (as explained in the second last paragraph of the announcement, as shown above) before finally being awarded the contract. That's taking ECI ("Early Contractor Involvement") to a whole new level! But I guess NST had to get Board approval and announce the positive FID (Final Investment Decision) for the $1.5 billion project before they started announcing contract awards.

With their "Drill and Blast" division, their large mining division, their engineering and construction division, their RCR Mining Technologies division, plus other divisions (see here: https://nrw.com.au/) NRW Holdings (NWH) are now Australia's largest mining services company.

Mineral Resources (MIN, aka MinRes) is a much bigger company, and Chris Ellison often describes MinRes as a mining services company, but the market regards MinRes now more as an iron ore miner (because they own a number of mines themselves) - with lithium assets - who also have a large mining services division. So, in terms of pure mining services, NRW, while being about one tenth the size of MinRes, are still regarded as Australia's largest mining services company, although I did read today that the merger between DDH1 (DDH) and Perenti (PRN) could potentially create a slightly larger mining services company than NRW (NWH). Perenti used to be called Ausdrill of course, and they acquired (or merged with) the formerly privately owned mining services company Barminco, and then changed their name to Perenti Global the following year, and now are just known as Perenti Ltd.

Disclosure: I hold shares in NWH, NST and MIN, but not PRN or DDH. DDH was on my watchlist, but I never pulled the trigger.

Back to NRW (NWH). Their fundamentals are encouraging. All are heading in the right direction:

Their net profit margin WAS slowing, and isn't wonderful, but most contract mining is low margin work these days; they just need to compensate for the lower margins by having a LOT of work, i.e. more volume to compensate for the lower margins, similar to consumer staples retailers like Woolworths and Coles, except these mining services companies have a lot less customers to deal with, and the customers need a LOT of work done, usually for years, and sometimes over decades. NRW do have a lot of work, so that's a big tick. They are also working on increasing their margins, and we saw quite a good uptick in 2022, as shown above (after a few years of decreasing margins).

For those who may not know, KCGM stands for Kalgoorlie Consolidated Gold Mines, and their main asset is the huge Kalgoorlie Super Pit gold mine that sits on the edge of Kalgoorlie, and the associated mill and other infrastructure, plus surrounding tenements. A few years ago, KCGM was a 50/50 JV (joint venture) between the world's two largest gold miners at the time, Barrick Gold and Newmont GoldCorp (Newmont are currently acquiring Australia's largest gold miner, Newcrest Mining). Those two companies sold their stakes in KCGM to Northern Star Resources (NST) and Saracen Minerals (SAR) which was founded by and run by Raleigh Finlayson - who now runs Genesis Minerals (GMD). Saracen and Northern Star then merged, via the acquisition of Saracen by NST, so now KCGM is 100% owned by NST and they have recently announced they are going to spend around $1.5 billion to more than double the size of the Super Pit - check out my Monday 26th June post in the Gold as an investment forum for more on that. There's even more on that further down in the same post in the "Money of Mine (MoM) Podcast" update section. The MoM boys discuss the Super Pit expansion in their Thursday 22nd June podcast:

Is it worth $1.5 Billion to Double The Super Pit? | Daily Mining Show - YouTube

This award by NST to NRW (NWH) of the $973m contract for the design, procurement, construction, and commissioning of the process plant facilities as part of the KCGM expansion over the next 3 years is the first major contract announced as part of this $1.5 billion Super Pit expansion, and is clearly the biggest contract as well, as it accounts for around two thirds of the project's total $1.5 billion cost (as announced by NST on the 22nd June).

I like it when one of the gold miners I hold awards a decent contract to another company that I also hold. Profits all 'round. That's certainly the plan anyway.

2019 NRW Holdings Company video - YouTube

NRW Civil and Mining - YouTube

https://nrw.com.au/

Word on the street is that some trauma going through the senior management here. If your invested, keep an eye on it.

16-Feb-2023: "It's all about managing expectations" - unknown, has been said by heaps of people.

NRW-Half-Year-Results-Announcement.PDF

NRW Holdings (NWH): Revenue up +15%, EBITA up +7.4%, Profit ("NPATN") up +3.9%, interim dividend up +9% to 8.5cps. Share price down -5.4% (or -16 cents) to $2.80.

Magellan Financial Group (MFG): Shocker, as expected, everything well down, but they didn't slash their dividend by as much as expected, and they are sounding reasonably upbeat about the future. MFG closed up +6.35% (up 60cps to $10.05). Announced a 46.9cps 85% franked interim dividend.

So it's all about market expectations and whether you underwhelm the market or exceed their expectations. Or just do as expected, like South32 (S32) - who also reported today, in line with expectations (which they have managed well) and they closed up +0.87% (or +4cps) in line with the market - the ASX200 closed up +0.80% and the All Ords closed up +0.81%. Not punished or rewarded. Expectations managed and expectations met.

But back to NRW (NWH): Their dividend is up 9% to 8.5 cents, but is unfranked. They said, "Future dividend payments until early 2025 are expected to be unfranked as the Group continues to access the ATO’s temporary full expensing allowance."

Fair enough.

UBS described it as a, "Slightly soft result. Focus will be on 2H23 tender outlook and pathway to cash generation improvement. We continue to believe NRW's outlook is favourable given the level of expected resource investment and that risks to earnings guidance and UBS' consensus for FY23 remain firmly skewed to the upside." While revenue and EBITA were both in line with guidance, and revenue slightly beat UBS' own estimate (which was $1.31 billion and NWH reported $1.33 billion in revenue), UBS said that, "1H23 EBITA c.2% below UBS' consensus although importantly FY23 guidance range reiterated."  

[Thanks @Remorhaz - see here: https://strawman.com/reports/NWH/Remorhaz?view-straw=21684].

Anyway, the market either wanted more, or else they were put off by the conservative commentary and cautious guidance, such as:

"Over the period we have extended a number of our long-term contracts, extracting additional value from the secured order book and have secured a number of new strategic contracts. We have maintained a very disciplined approach to bidding new work, which has meant that we have at times not won projects that we were well positioned to secure. Whilst disappointing to come second to a competitor, our people know the criticality of pricing our bids responsibly in line with current market conditions.

[Highlighting and underlining added by me]

Revenue and profits have increased relative to the prior comparative period, however margins have been impacted by the La Niña weather pattern, higher levels of overheads due to the delayed commencement of new work, longer tender cycles and investment in building capacity in Primero’s North American delivery capability to support growing client demand in Canada and the USA.

The Group’s cash balance decreased in the six months, which was expected, resulting from the unwinding of project advances received in prior periods, and the investment in working capital for the new long-term mining contract awards and extensions. This is expected to recover over the remainder of the year as these contracts mature."

And this:

"NRW’s total pipeline is $19.3 billion continuing the strong trend reported in FY22, and of this, $4.1 billion is submitted tenders. The value of work secured for FY23 is approximately $2.6 billion which is either in the order book or is expected as repeat business.

Guidance for the full year is reconfirmed with revenue expected to be between $2.6 billion to $2.7 billion and EBITA to be between $162 million and $172 million.

Tempering the positive near-term outlook is the macroeconomic environment where rising direct costs, together with high interest rates are delaying new project starts, particularly in the resources sector.

In addition, abnormally high rainfall levels in Queensland and some parts of Western Australia have caused delays on some of our current projects. This has impacted the results for the first half of FY23, which may carry over to the full year unless weather patterns return to long-term norms."

---

The bit I have underlined up there is a big tick IMO for NRW's management because they have learned from past mistakes not to bid too low and end up losing money on contracts. They would prefer to miss out on a contract win than to win the contract and then lose money on it. I like that discipline. SRG management also display the same sort of bidding discipline, and they reported today also, but didn't trade at all because SRG also called a trading halt this morning, announced another acquisition, and a capital raise (placement). They are a company that I still keep an eye on - even though I no longer hold - and I note SRG remain a top 10 position in Tony Hansen's EGPCVF portfolio.

I'm thinking NRW Holdings (NWH) are now the premier quality Australian mining services company - with MND (Monadelphous) being the best engineering and construction (E&C) company to the resources sector. NWH are the best contract miners with D&B (drill and blast) plus E&C capability as well. MAH are OK, but NWH are better.

The market sold NWH down -5.41% today, to $2.80, however, to put that into some perspective, they have had a good run-up into this result, and they were trading below $2.80 through most of December, and they closed at $2.79 on 03-Jan-2023. In my largest real life portfolio I'm still up +50% in capital gains terms on NWH (NRW Holdings), plus dividends, and their dividend yield based on my $1.87 average buy price is now 8.3%pa + franking (although there won't be any franking for a couple of years, as mentioned above). NWH have disciplined management who don't underbid just to win unprofitable work, and they have become very good capital allocators, with their recent M&A track record proving to be very good, similar to Codan's.

Codan (CDA) also reported today, and they were bid up +7.6% (+40cps to $5.66). I know a lot of people gave up on them when they went below $4/share, but Codan are a quality company with more than just one string ("metal detection") to their bow. And they announced another acquisition today - which is again immediately EPS-accretive - and is a small bolt on acquisition for their Zetron communications business - see here: CDA-GeoConex-Acquisition-Announcement.PDF

Codan are paying for that using cash. No capital raise required. Their Comms business is going very well, and their Metal Detection business will return to growth in future years with or without a return to normal conditions in Africa. Codan is my second largest position here on SM and the largest position in my largest real life portfolio. They are also the 4th largest position in my SMSF (behind NST, MIN & FMG, my miners have performed well for me).

The detour to Codan was really just to point out that sustained top-notch capital management by company management will usually see companies through the hard times and they'll come out the other side even stronger. Just like NWH will. They've had plenty to deal with, like the pandemic, the weather events in Qld and WA, plus significant headwinds around staff attraction and retention - due to the skilled labour shortage in the mining industry, especially in WA where NWH have a lot of work. And they are still putting runs on the board. They are calling out the challenges and the headwinds but that's what you want them to do. Underpromise and overdeliver in the longer term. They didn't manage to overdeliver with this result, but they delivered in line with the guidance that they had provided to the market, and that's a win in my book, given their headwinds.

While companies that disappoint are being smashed, and companies that give cautious or no guidance are also being sold down hard, I have noticed that some of those companies are starting to recover as investors process it all and realise that declining to provide firm guidance in the current environment - or providing cautious guidance and calling out obvious headwinds - is not the end of the world. Nick Scali Furniture (NCK) rose +3.15% (+32c) today. When you've got a company of NCK's quality and track record who have just delivered yet another cracking result, lack of full year guidance is but a minor inconvenience, if that. I have been accumulating NCK in my largest real life portfolio from last Thursday through to yesterday, at an average price of $10.11. NCK closed today at $10.47 and I reckon the sell-down is probably over, or the worst of it at least.

I hold NRW (NWH) here, and in my SMSF, and in my largest real life portfolio. They are my favourite mining services company at the minute, and I liked their report today considering what they've had to deal with during the period reported on.

I like to buy them at around $2 or below, and trim the position up around $3 or above. As a mining services company, they will tend to trend well along with sentiment, both positive and negative sentiment, so they are reasonably easy to trade around a core position.

Very well run company these days, and it wasn't always so. They almost went broke a few years back, and I can't see that happening again. I didn't hold them then, because they weren't a quality company then, but they are now. They have quality management now anyway. As far as being a "quality company", that is rather subjective and depends on your personal preferences and point of view I guess. They're not for everybody, sure, but I like them a lot.

And they do stuff in other industries also - other than mining, such as roads, rail and other infrastructure.

09-Nov-2022: At around midday today, NRW Holdings (NWH) is up by around +4% (or +10 cents to $2.53) on the back of their AGM and AGM Presentation - which you can view here: NRW-2022-AGM---CEO-Address--Presentation.PDF

Here are some of the key slides, which give you an idea of why this company is one of the few Australian mining services companies whose share price is actually increasing, and they're one of my favourite companies, and a core position in all of my main portfolios.

That's a nice pie-chart on the right showing how diversified their revenue is now. They do a lot of work now outside of mining, including infrastructure work such as rail line construction, roads, bridges, airstrips, etc. They are also diversified across mining, from actual mining, to earthworks, to drill & blast, through to processing plant engineering and construction. They picked up the RCR Mining Technologies business from the RCR Administrators for next to nothing, and they did not overpay for any of their other acquisitions either.

One of the things I admire most about their management is how disciplined and strategic they have been with their acquisitions. Every business they have bought has enabled them to move into a new area with a company that has already carved out good market share within that area and has lots of experience and a good reputation within that industry - or industry segment. It's not only a lot quicker, it's also a lot safer, than trying to expand into a new area with very little experience and no track record. And the areas that NRW have expanded into have been complimentary to their existing business divisions, so every acquisition has made good strategic sense - because it's the old 1 + 1 + 1 = more than 3; the value of the whole package is greater than the sum of the parts. There is packaging and cross-selling that is available across their client base, and many clients would much prefer to deal with a single company that can provide multiple services than with a number of different companies.

This is a company that got down to about 4 cents per share and almost went broke due to high debt and reduced work in prior years - during the bust that followed the last really big mining boom. But they have REALLY turned that around. They have not made those mistakes in recent years. They now have $219.3m in cash holdings, a record $5.2 BILLION order book and a $19.8 billion pipeline of tender opportunities (work they either have tendered for or are planning to tender for), and they are profitable, having made $97.4 million of net profit on $2.4 billion revenue in FY22. And guiding for between $162 and $172m in earnings (EBITA) on between $2.6 and $2.7 billion of revenue in FY23.

Yeah, there's a lot to like about NRW Holdings (NWH) these days.

ASX ANNOUNCEMENT

18 August 2022

NRW Confirms Non-Binding Indicative Proposal To Acquire MACA Limited NRW Holdings Limited (ASX: NWH), confirms that on 11 August 2022 it approached the board of MACA Limited (MACA), with a confidential non-binding indicative proposal under which the two companies would merge through a combined cash and share merger by way of a scheme of arrangement (Merger Proposal).

NRW’s Merger Proposal was to acquire all MACA’s shares for an implied consideration of $1.085 per share1

. NRW views the Merger Proposal represented a compelling value proposition for all MACA shareholders, valuing the equity of MACA at $375 million2 (Consideration). NRW’s Merger Proposal was subject to certain conditions including completion of confirmatory due diligence to the satisfaction of NRW (expected to be completed over a two-week period), finalising finance arrangements, entry into a scheme implementation agreement and a unanimous recommendation from the MACA Board that MACA shareholders vote in favour of the Merger Proposal in the absence of a superior proposal.

NRW’s confirms it has received a letter of interest to underwrite an acquisition finance facility from its financiers.

In NRW’s view, the Merger Proposal was capable of being a superior proposal to the current conditional Thiess takeover offer of $1.025 and warranted further investigation by MACA.

NRW has today received correspondence from MACA that it does not consider the Merger Proposal as superior to the current conditional Thiess takeover offer and does not propose to engage in further discussions in respect of the Merger Proposal in the form presented.

NRW Managing Director Mr Jules Pemberton said:

“We are disappointed that the Board of MACA has indicated that it is not willing to entertain our compelling proposal. “NRW believed it was uniquely positioned to offer attractive value for all MACA shareholders and, importantly, the benefits of continued exposure to MACA’s business as part of a larger and diversified provider of contract services to the resources, infrastructure and energy sectors across Australia.” 

Both NWH and MACA (ASX:MLD) have gone into Trading Halts citing "Media Speculation".

They will both come out of their trading halts on Monday 22/8/22.

M&A???

Reported EBITDA of $266.M and net cashflow from operations of $147.4M. Increased labour costs in WA Pilbara did impact the results, but most work in that State have now concluded and new contracts have priced in the increased costs. If borders do open and costs come down this could improve margins on recently signed contracts. In a hard sector managment has done extrordinary well in building out services enabling NWH to bid on bigger contracts. A final dividend of 5 cents per share fully franked a 3.6% yield on the closing price. This was only ever a trade and will be taking profits over the next few days if the share price continues to run. 

12-July-2021:  Boggabri Mining Contract Mobile Plant Sale

NRW Holdings (ASX: NWH) was up just shy of +12% today on the back of this announcement (up 18.5 cps from $1.545 to $1.73).  It's off a low base, but it's a start.  Basically one of the coal miners that their Golding division does work for (BCO: Boggabri) is opting to buy the equipment used at their minesite off NRW for $81m (to be settled by the end of this month), of which $61m will be applied to reduce NRW's equipment (asset) financing debt, leaving NRW in a net debt position of only $34m - down from circa $115 million as at 30th June 2021 (which was made up of interest bearing debt of $260m less cash of $145m), and it shouldn't take too long to knock off that other $34m of net debt either, as it reduces as their cash balance rises, and also as they actually pay down the debt.  NRW have a recent history of paying down debt reasonably quickly, after taking on debt to fund acquisitions - which are always earnings accretive acquisitions - coz I keep a close eye on that (I hold NRW/NWH shares).

The loss of the mining services work at Boggabri (that utilised that equipment that will be sold to BCO) will reduce NWH group pre-tax earnings by circa $1.8M per annum, which is nothing really for a company their size.  Golding will continue to perform maintenance services on site at Boggabri across the 38 major mobile mining assets that are being sold/transferred from Golding to BCO, plus another circa 50 pieces of major mining equipment, engaging a workforce of over 150 personnel on site.

It's a good deal for NWH.  The market liked it too.

Additionally, back in mid-June, they made this announcement:

18-June-2021:  NRW - Letter of Intent for Karara Mining

While that is so far just an LOI (letter of intent), once an agreement with Karara Mining has been agreed and signed, the anticipated value of the contract is circa $702 million over five years with a project workforce averaging around 250 personnel.  They also announced in late April the award of a $27.2m contract for NRW's wholly owned subsidiary RCR Mining Technologies division to Design and Construct a Primary Crushing Plant (PCP) at Fortescue Metals Group’s (ASX:FMG) Cloudbreak mine.  

They said at the time, "After successful delivery of the previous Hopper 9 Crushing Facility at Fortescue’s Cloudbreak mine in early 2020 this award is strategically significant for the business as it showcases our engineering led delivery of innovative solutions. RCR is partnering with Primero Group [another NRW division] who will provide engineering support and construction services. This project will be complimentary and concurrent to the Solomon Hub Conveyor and Crushing plant we are currently delivering for Fortescue Metals Group, announced earlier this year. NRW subsidiaries, RCR Mining Technologies and DIAB Engineering, together with Primero, bring a very strong Design, Manufacture and Construction capability to this project with an engineering led philosophy of solutions and innovation."

On the same day (29-Apr-2021), NRW also announced that its wholly owned subsidiary Primero Group had been awarded a new contract for the Engineering, Procurement and Construction (EPC) of the Coburn Minerals Sands project for Strandline Resources (ASX:STA).  The project includes the delivery of both the Wet Concentrate Plant (WCP) and the Minerals Separation Plant (MSP) to beneficiate a heavy mineral concentrate and be followed by a dry separation process utilising conventional electrostatic separation, gravity and magnetic fractionation to produce saleable premium quality final products, including chloride ilmenite, rutile, zircon and zircon concentrate. The award follows a successful ECI process awarded in Q3 2020, which was then converted to Front End Engineering Design (FEED) to further optimise the project, with finalising of contract terms and pricing coinciding with Strandline completing funding requirements for the project to proceed. Project completion is planned for Q4 2022, with construction peaking through 2022 employing approximately 180 site personnel to deliver the project on site.

These are just some of the new contracts they have announced in the past few months.  NRW is an interesting company, with a market cap of over $700m (and over $1 billion last year before their share price halved from over $3/share to under $1.50/share), they are part contract mining (like MAH and MLD), and part E&C (engineering and construction, like MND, GNG, LYL), and always busy.

Disclosure:  I hold NWH, MAH, MLD, MND, GNG and LYL shares.

19-Feb-2021:  UBS have upgraded their coverage of NRW Holdings (ASX:NWH) after NRW's H1 results release yesterday:

UBS - 19/02/2021:  Buy, Target: $3.00  (Gain to target $0.71 or +31%)

First half results were below UBS estimates, amid larger-than-expected impacts from the pandemic on staffing, which affected productivity.

The implied margin signals the performance, outside of pandemic-affected contracts, would have been tracking ahead of UBS estimates.

The broker envisages a significant opportunity over the medium term and retains a Buy rating. Target is reduced to $3.00 from $3.15.

Target price : $3.00  Price : $2.29 (19/02/2021)  Gain to target $0.71 (31.00%)

(excluding dividends, fees and charges)

Previously...

UBS - 25/11/2020:  Buy, Target: $3.15

NRW Holdings has announced an off-market bid for Primero Group ((PGX)) at $0.55 a share. UBS observes the proposal builds on the recent acquisition of DIAB Engineering and RCR Mining Technologies, representing a further diversification of the strategic platform.

Primero is a vertically integrated business providing engineering, design, construction and operating services to the minerals, energy and infrastructure sectors. Buy rating and $3.15 target retained.

--- end of broker note summary ---

Citi are the only other major broker covering NRW (NWH) according to FNArena.com and Citi have not updated their clients on NRW since August when NRW presented their full year numbers for FY2020.  Back then (on 21-Aug-2020), Citi had a "Buy" call on NRW and a $2.75 price target.  Since then, NRW have acquired PGX (Primero) and we've had the NRW H1 FY2021 results released yesterday.

NRW (NWH) already owns over 98% of PGX (Primero Group) and are compulsorily acquiring the remaining <2%.  Their previous 3 acquisitions have been very good, all earnings-per-share-accretive, and they do not appear to have overpaid for any of them.  There were some insto's (including Perennial Value Management and Credit Suisse) who got involved in this latest (PGX) takeover, which caused the process to drag on for about 4 months, however NRW remained disciplined and did not raise their offer price at all, so in the end (as in last Friday) those insto's ended up selling their 18% of PGX to NRW at the original price offered by NRW.  Quality management at NRW and they are a quality $1 billion plus m/cap company, in as much as contractors can be quality companies.  Revenue tends to be fairly lumpy at various times.  Clearly oversold yesterday, hence I purchased more here on Strawman.com and also in one of my other RL portfolios. 

NRW had increased revenue (by +45% over the pcp) but had much lower margins due to increased costs due to COVID - which were mostly higher labour costs and lower productivity due to high employee turnover - also due to COVID - with their WA workforce often confined to local labour only.  NRW do a lot of work in WA, including all three of the major iron ore expansion projects in WA's Pilbara, South Flank (BHP), Eliwana (FMG) and Koodaideri (RIO).  They also do a lot of contract mining around WA.  The strict quarantine rules there - which included regional quarantine zones within WA - were very disruptive and basically stopped people from travelling to jobs from outside of the local area in many cases - at various times. 

There was also a big $19.1m one-off write-down due to Altura Mining going to the wall last year when the lithium price tanked (one of the reasons I'm wary of lithium - there is a LOT of supply that can come back online very quickly once increased demand drives the price back up to suitable levels).  That $19.1m write-down was partially offset by the Gascoyne Resources (GCY) recapitalisation which meant that NRW received $16.5m that they had previously written off (in the prior 12 month period).

Positives:

• NRW were still profitable during the half, just -13% less profitable than the pcp ($29m vs $33.4m profit after tax);  
• Their revenue was +45% higher at $1.138 billion vs $784 million for the prior corresponding 6 months period (ending 31-Dec-2019). 
• They have reduced their debt and gearing (gearing now < 20%);
• They've increased their NTA/share from 72cps to 87cps;
• Their interim dividend has been increased from 2.5cps to 4cps (and they've outlined a more generous dividend policy going forwards);
• They have a very healthy Order Book (WIH), and have provided a good revenue guidance range of A$2.2B to A$2.3B for the full year - with the low end of that range already covered with secured work;
• Their Tender Pipeline has now increased to A$14.1B, of which NRW has current submitted tenders of circa A$5.0B;
  • Additionally, Primero have announced secured work for the second half of FY21 of circa A$130M and holds preferred contractor status for over A$1B of projects;
• Growth is expected to continue as a result of increasing expenditure on infrastructure projects at both a state and federal level; and
• Demand for commodities remains strong.

They are also now in the final steps of securing 100% of PGX.  They have worked alongside Primero on some projects already and are already being awarded new work which will involve both Primero and NRW's "RCR Mining Technologies" division working together to deliver the projects.  Primero’s business and its competencies are complementary to NRW’s compelling strategic delivery platform and will enable NRW to provide a broader client service offering - Primero is a vertically integrated engineering group that specialise in the design, construction and operation of resource projects.  NRW’s newly renamed Minerals, Energy & Technologies division will include Primero and offer clients continuity of services across the whole lifecycle of resource projects - from early planning, design, development, construction to operations and maintenance.

While yesterday's H1 results were not what the market had hoped for - particularly in terms of the lower margins and lower earnings/profits for the half (due to COVID, as explained above), those issues are temporary, not structural, and they're back in the "buy" zone for me now.

[I hold NRW (ASX:NWH) shares.]

18-Feb-2021:  NRW Half Year Results Media Release   plus   NRW Half Year Results Presentation

Also:  Half Yearly Report and Accounts

Record First Half Year Revenue

Highlights

• Revenue up 44% to A$1,168M; first half of FY20 (pcp) $808.7M.
• Earnings (EBITDA) increased to $132.8M up 28% compared to $103.8M* pcp.
• Margins on Pilbara projects impacted by resource availability due to continued resource constraints related to COVID-19 measures
• Cash balance at $171.4M and net debt reduced by $43.2M to $96.5M
• Gearing sub-20% (including Lease Debt)
• Bank debt fully repaid – Golding acquisitions and Corporate Notes
• Order wins in excess of $1B, including two major infrastructure projects
• Interim dividend declared of 4 cents per share and updated Dividend Policy advised
• Strong cash conversion – expected repayment of contract advances the major movement in first half working capital
• Net result includes non-cash expenses related to the amortisation of acquisition intangibles ($9.0M) and tax expense ($11.2M) offset against prior year losses
• Primero (ASX:PGX) takeover - moving to compulsory acquisition - delivers a step change in scale and diversity to NRW’s Minerals, Energy and Technology (MET) pillar. MET secured its largest project to date to deliver a Primary Crusher and Overland Conveyor for the Queens Project at the Solomon Hub for Fortescue Metals Group. Led by RCR Mining Technologies and supported by Primero, NRW Civil and DIAB Engineering demonstrating the end to end delivery capability of the enlarged group.

Note: (*) For comparative purposes, prior period EBITDA is adjusted to reflect application and finalisation of AASB 16.

Commenting on the performance of the business, Jules Pemberton, NRW’s Chief Executive Officer and Managing Director said:

“I would once again like to begin my commentary on the Company’s performance by recognising the significant contributions made by the NRW workforce in delivering these results in what remains a continuing challenging environment presented by COVID-19.

Our entire workforce has continued to work hard every day around the nation despite the different challenges we have faced state by state through the consequences of full lockdowns and partial lockdowns, but in particular the border closure impact which has limited our access to resources through what has probably been the busiest six months in NRW’s history.

Despite these restrictions the Company has delivered a record first half revenue, increased earnings and maintained its fiscal discipline by once again delivering a strong cash conversion.

Our strong first half performance has allowed the Board to update our Dividend policy, commented on below, which will deliver an interim dividend of 4 cents per share, up 60% on prior comparative period.

I am also pleased to report that despite the ongoing issues related to COVID-19 we have been able to provide entry-level employment and upskilling opportunities through apprenticeships and trade upgrades. We have also taken on graduates and vacation students in disciplines aligned to our key activities.”

Outlook

The business has delivered significant growth over the last four years due to both sustained growth in the Company’s core markets and the successful acquisitions of Golding, RCRMT and BGC Contracting.

NRW Chief Executive Officer and Managing Director Jules Pemberton said:

“Growth is expected to continue as a result of increasing expenditure on Infrastructure projects at state and federal level, demand for commodities remaining strong and as a consequence of the recently announced Primero acquisition.

Working closely with the Primero team since the acquisition announcement has confirmed the opportunities to expand our Minerals, Energy & Technologies (MET) specialised capabilities which will provide leverage for the combined expertise to pursue new business initiatives across a large pipeline of opportunities.

The addition of Primero to the MET business represents a further diversification of our strategic platform to offer clients continuity of services across the whole lifecycle of resource projects – from early planning, design, development, construction to operations and maintenance.

In addition, our exposure and now strengthened capability to participate in the future energy minerals and renewables sectors is also set to grow through Primero’s existing client base and significant future opportunities.”

The Order Pipeline remains strong with the potential for further Infrastructure projects to be accelerated as part of joint federal and state priorities to address the economic consequences of COVID-19. The Pipeline of tenders and prospects expected to be awarded in the next 12 months has increased to $14.1B of which circa $5B are currently submitted tenders. Order Intake in the half was just over $1B generating an order book at the end of December of circa $2.8B. Primero has an order book of circa $165M and holds preferred EPC contractor status across multiple projects totalling around $1B.

NRW is maintaining its forecast revenue of between $2.2B to $2.3B for FY21. The lower end of this range is now covered with secured work.

Interim Dividend and Updated Dividend Policy

The Board of Directors has agreed an updated dividend policy which recognises that the Company whilst delivering on its growth objectives through a number of strategic acquisitions has at the same time demonstrated continued strong cash generation. The Board has concluded that in future the dividend payout ratio will be 40% to 60% of Normalised Net earnings, (Net Earnings excluding non-cash amortisation of intangibles and non-recurring transactions). In establishing this policy, the Board has reserved its position to direct available cash to meet strategic investments if the capital structure of those investments is best met from own funds.

Given the importance of the BGC and Primero acquisitions over the last 12 months priority was given to ensuring appropriate liquidity to support both growth from the acquisitions and organic growth.

The Directors have declared an interim dividend for the six months ended 31 December 2020 of 4 cents per share which compares to 2.5 cents per share declared in the prior comparative period. The dividend will be fully franked and will be paid on 8 April 2021.

--- ends --- 

[I'm a happy holder of NRW (ASX: NWH) shares across my main 3 portfolios, and they are also on my Strawman.com scorecard.  It's been a brilliant turnaround since they got down to 5 cents per share on 1-Jan-2016 due to high debt and reduced work at that time.  Their management have been a lot smarter since then, and their acquisitions have been very well chosen - and they have NOT overpaid for any of them.  I contacted Kim Hyman, their company secretary this morning to point out that in their original dividend/distribution notification announcement today they put 100% as the corporate tax rate instead of 30% (top right on page 4).  He emailed me back within 5 minutes to thank me for the heads up.  Another tick in my book.  NRW (NWH) are not a small company any more (m/cap=over $1 billion now), but I have always been able to reach out to management when I have a query or comment, and they always reply promptly.]

Record First Half Year Revenue Highlights

•  Revenue up 44% to $1,168M; first half of FY20 (pcp) $808.7M.
•  Earnings (EBITDA) increased to $132.8M up 28% compared to $103.8M1 pcp.
•  Margins on Pilbara projects impacted by resource availability due to continued resource constraints related to COVID-19 measures
•  Cash balance at $171.4M and net debt reduced by $43.2M to $96.5M
•  Gearing sub 20% (including Lease Debt)
•  Bank debt fully repaid – Golding acquisitions and Corporate Notes
•  Order wins in excess of $1B, including two major infrastructure projects
•  Interim dividend declared of 4 cents per share and updated Dividend Policy advised
•  Strong cash conversion – expected repayment of contract advances the major movement in first half working capital
•  Net result includes non-cash expenses related to the amortisation of acquisition intangibles ($9.0M) and tax expense ($11.2M) offset against prior year losses
•  Primero (ASX:PGX) takeover - moving to compulsory acquisition - delivers a step change in scale and diversity to NRW’s Minerals, Energy and Technology (MET) pillar. MET secured its largest project to date to deliver a Primary Crusher and Overland Conveyor for the Queens Project at the Solomon Hub for Fortescue Metals Group. Led by RCR Mining Technologies and supported by Primero, NRW Civil and DIAB Engineering demonstrating the end to end delivery capability of the enlarged group

DIsC: I hold

16-Feb-2021:  NRW to proceed to compulsory acquisition of Primero Group

plus:  NRW Half Year Results - Conference Call details - Thursday 18-Feb-2021

As I mentioned yesterday, I expected NRW to quickly move to compulsory acquisition of the remaining (less than 2%) of Primero Group (PGX) shares that they do not already own, and today they announced exactly that.  They have also given details of their conference call that will accompany their results release on Thursday (18-Feb-2021).  Links to both announcements are above.  [I hold NRW (ASX: NWH) shares.]

15-Feb-2021:  NRW Holdings (NWH) closed at $3.09 twelve days ago - on 03-Feb-2021 - after hitting an intraday high of $3.19 that day.  On Friday they had slipped back to $2.67/share, after extending the closing date for their takeover offer for Primero (ASX: PGX) once again, having only managed to acquire 80.35% of Primero (as of Thursday 11-Feb-2021).  There were a few substantial holders holding out for a better offer it seems.  Credit Suisse was even buying PGX shares on-market during January (increasing their holding from 5.4% to 6.73%) while the offer from NWH for PGX was open.  Those substantial holders have all now agreed to sell their shares to NWH it seems, because today (15-Feb-2021) NWH updated the ASX (and the market) that they had moved from owning 80.35% of PGX to now owning 98.39% of PGX, which is a HUGE increase in a single business day.  Obviously, because they own over 90% of PGX, NWH can now move to compulsorily acquire the remaining PGX shares, in this case being less than 2%.

The way I see this as having played out was that NWH have made some really smart and earnings-accretive acquisitions over the past 2 years, and this looked like another one, hence the initial positive market reaction when NWH announced the acquisition originally back on 24-Nov-2020, almost 3 months ago.  NWH (NRW Holdings) shares closed at $2.59 the day before that announcement, and were up to $3.03 by 10-Dec-2020 (17 days, or 13 trading days later), a +17% increase in their SP in just over a fortnight.  They've waxed and waned since then however as the offer has dragged out a lot longer than many might have expected - due to those substantial shareholders holding out for a better offer that did not come.  The offer remained the same ($0.275 cash plus 0.106 NWH shares for each PGX share held) throughout the entire offer period.  It was not increased and it was not going to be increased. 

As with previous offers (for other companies), NWH remain very disciplined and were prepared to walk away if their offer, which they considered fair and reasonable, was not accepted by 90% plus of PGX shareholders, which it now has been.  Of course, they could not really just "walk away" when they owned 80% of PGX, as they did last Thursday, but what I'm trying to say is - that the remaining substantial holders have now finally realised that the offer was final and there wasn't going to be a better one, and that's why they've sold their PGX shares to NWH (since Thursday).

I see this as another positive development.  I believe NWH are going to report very well this month, and I believe this paves the way for another positive market re-rating of the company - another leg up.

[ I hold NWH shares in three of my four RL portfolios, including my super, and they are also on my Strawman.com scorecard.]

22-Oct-2020:  Gascoyne Update

Update in Relation to Gascoyne Resources Limited

Leading Australian Resources and Infrastructure contractor NRW Holdings Limited (ASX: NWH) is pleased to provide an update on the agreements reached with Gascoyne Resources Limited (ASX: GCY) (or “Gascoyne”) following their successful recapitalisation process.

The key elements of our agreement are

• Mining Contract – NRW has agreed binding terms with GCY for an extension of both Mining and Drill & Blast services for the full life of mine at the Dalgaranga Gold Project which increases the overall contract value by circa $180M.
• Recovery of all pre administration debts:
  • NRW has received $7 million in cash as foreshadowed in the recapitalisation agreement, and;
  • NRW received 24 million GCY shares (post consolidation) valued at $12 million at the issue price of the equity raising.
  • A further $13.7 million will be paid linked to ounces produced and the gold price.
• NRW also exercised its rights as part of the Entitlement Offer and now holds in total 36.9 million shares in GCY (post consolidation) valued at $19.6 million based on the GCY closing price on the 21st October 2020.

Commenting on the work undertaken with Gascoyne and FTI as administrators Andrew Walsh NRW’s CFO noted:

“We have worked closely with the teams in both Gascoyne and FTI to support the recapitalisation plan recognising that a viable Dalgaranga project was critical to the success of that process. Output from the project has been consistently above 6,000 ounces a month for most of this year which has provided the basis for a great solution for both Gascoyne and NRW”

“Recent announcements on potential additional resources will provide opportunities for NRW to provide additional services beyond the current Life of Mine Plan”

[I hold NWH shares, but not GCY shares directly.  However, as a NWH shareholder, I now also have indirect exposure to GCY via NWH's 14.72% substantial shareholding in GCY.]

20-Mar-2020:  Response to media article

Yesterday I updated my commentary (reasons) around my valuation for NWH (NRW Holdings) and said that they were certainly worth a great deal more than the $1.14 that they were when I was typing that update.  They closed at $1.095, but I imagine they'll rise today.  I knew that they had debt, but very manageable debt levels for a company their size and in their position (within their industry). 

This morning they have released a "Response to media article" announcement (link above) which discusses why their debt is NOT going to bring them undone, and that the majority of it is related to equipment leases, with much of that equipment being able to be returned with no penalty (i.e. the leases can be cancelled at any time with very little notice, and are only applicable while NRW retains use of that equipment, and they retain the equipment only when it is being used to generate income for them).  This equipment is mostly earthmoving and mining equipment. 

NRW Holdings (NWH) have expanded rapidly in the past couple of years - since their near-death experience after the mining boom went bust - and they have learned from that.  One thing they do now that is different to the prior mining boom is that they don't just go out and buy equipment outright to service new contracts.  For the most part, they lease the equipment instead, so that when circumstances change, they can simply return the equipment, rather than being stuck with a lot of expensive machinery that is sitting idle and not earning them any money (during the down/lean years). 

The new AASB16 accounting guidelines mean that ALL current lease obligations (including equipment leases) need to be included in their current debt numbers, which was not previously the case (in FY19 and prior to that the numbers would have looked very different).  Today's announcement not only breaks their debt down and explains what it all is, but also gives you a repayment schedule for the next couple of years showing how quickly they are going to pay it off, and what contingencies are in place should circumstances go south on them.  

The final paragraph is, "NRW is continuing to support its clients and their projects. We have not experienced any material impact to our operations and equipment utilisation remains consistent with our activity expectations. We are working closely with clients to monitor the health and well being of site personnel and to ensure continuation of all operations and projects."

So business as usual for NWH (NRW Holdings) as I suggested yesterday should be the case.  I would like to see more companies release information like this that is so comprehensive with regard to their debt situation.  It would certainly help to ease speculation about which companies might be in danger of going under.

10-Mar-2020:  NRW - Euroz Presentation

03-Jul-19:  This one is not a new contract award, but instead a variation to an existing contract to provide additional trucking capability at Stanmore Coal's Isaac Plains East coal mining operation, which will result in additional revenue being paid to NRW by Stanmore (SMR). 

This is as a direct result of Stanmore Coal buying a new 600-tonne class excavator which will increase overburden removal productivity rates and reduce average unit overburden costs.  The acquisition of the new excavator will maintain ROM (run-of-mine) coal volumes from Isaac Plains East in the short term and allow accelerated ramp-up of the Isaac Downs Project once the approvals are granted.  It all means more work for NRW as they provide all of the haulage (ore transport) there for SMC.

NRW's Announcement:  Isaac Plains East - Additional Capacity

SMR's Announcement:  SMR: Stanmore Coal investing in open cut efficiency

Disclosure:  I hold NRW (NWH) shares.