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Added 2 months ago
#2020 Contract Wins

13-Jan-2020:  Monadelphous announced that their 60% owned JV with Lycopodium, Mondium (LYL own the other 40% of Mondium) has won their biggest contract ever, valued at approximately A$400 million, with Rio Tinto (RIO) for the design and construction of the Western Turner Syncline Phase 2 (WTS2) mine, located in the Pilbara region of Western Australia. 

Click here for MND's announcement and here for LYL's announcement.

Hartley's have also released a broker/analyst update on this news - raising their 12-month PT (price target) for LYL from $5.70 to $6.76 (and maintaining their Buy recommendation for LYL).  They also explain how LYL treat this revenue from an accounting perspective and how it is likely to affect their profitability going forwards (the impact of the contract on their bottom line).  You can access that report here.

MND are a LOT bigger than LYL, so while this is a very big contract for Mondium (around 4 times bigger than their previous biggest contract), and is also a big deal for Lycopodium, it is less material to a company the size of Monadelphous, who have a number of JVs in addition to their usual direct contracting work.  This may explain why LYL is up just over 5% since the announcement, but MND finished the week up less than 1%.  I hold both MND and LYL.

 
Added 4 months ago
#2019 Contract Wins

20-Nov-2019:  Monadelphous Secures Rio Tinto Maintenance Services Contract

MND's SP rose +4.23% on the day, and then another 3% the following day (Thursday 21st Nov) to be up over 7% in 2 days.  MND is a core holding of mine, but I also like to trade around that core holding, so loading up when sentiment is particularly negative, and then trimming the position when the market becomes bullish on MND again.  I'm not trimming yet however.  I like to trim MND up around $19 to $20/share, and they're only around $16.50 today (pre-market-open).

 
Added 5 months ago
#Moving into South America
 
Last edited a month ago
#2019 Contract Wins

20-Aug-2019:  Monadelphous Contracts Update

[MND have also reported today (FY219 full year results) - see straw under "Results".]

MONADELPHOUS CONTRACTS UPDATE 
 
Engineering company Monadelphous Group Limited (ASX:MND) (“Monadelphous” or “the Company”) today announced it has been awarded a major construction contract at Albemarle Lithium Pty Ltd’s (“Albemarle”) new Kemerton lithium hydroxide plant in the south-west region of Western Australia   Under the contract, Monadelphous will deliver the pyromet structural, mechanical and piping (SMP) package of work, as well as associated piping fabrication for Albemarle’s lithium hydroxide plant. Work will commence immediately and be complete by early 2021. 
 
Monadelphous will be supporting the local community by offering local employment and supply opportunities. 
 
Monadelphous Managing Director, Rob Velletri, said, “We look forward to working with Albemarle for the first time on the construction of such an important project and to expand our presence in the growing lithium sector.” 
 
“This contract along with a number of other recently announced contract awards in the resource sector have kicked off a promising start to the 2020 financial year bringing the total value of contracts secured since July to over $400 million.” 

 

--- ends ---

 

Disclosure:  I hold MND shares in all of my portfolios.

 
Last edited 2 months ago
#2019 Contract Wins

13 August 2019:  Monadelphous Expands Rail Maintenance Service Offering

Engineering company Monadelphous Group Limited (ASX: MND) (“Monadelphous” or “the Company”) today announced it had been awarded a contract for the provision of services to Rio Tinto on its privately-owned rail network in the Pilbara region of Western Australia.   The Company’s Maintenance and Industrial Services division will provide maintenance services across three packages of work under a three-year contract, with a further two three-year extension options. The contract, valued at approximately $60 million, strengthens the Company’s position in the rail sector.  
 
The scope of work includes general track maintenance and renewals services on the coastal component of the rail network, resurfacing services across Rio Tinto’s entire rail network and rail workshop services.   Monadelphous Managing Director, Rob Velletri, said the contract built on the Company’s long-term relationship with Rio Tinto in the delivery of construction and maintenance services, and further broadened Monadelphous’ service offering.  
 
“The contract is a significant strategic milestone for our business,” Mr Velletri said. “This work will also provide us with the opportunity to strengthen and build on our existing capabilities in the rail sector.”  
 
Monadelphous currently undertakes rail work across the Pilbara region including mechanical repair, abrasive blasting, cleaning and relining of carbon steel ore wagons and the provision of commissioning services for new ore wagons.

--- ends ---

Also, earlier this month:

05 August 2019:  Monadelphous Contracts Update

02 August 2019:  MND Secures Major Construction Contract With Rio Tinto

 
Last edited 2 months ago
#2019 Contract Wins
 
Last edited 2 months ago
#2019 Contract Wins
 
Last edited 4 months ago
#New Director

12-June-2019:  Monadelphous appoints new Non-Executive Director

Mr John Rubino, Chairman of Monadelphous Group Limited (ASX:MND) (“Monadelphous”), is pleased to announce the appointment of Ms Sue Murphy AO as a Non-Executive Director of Monadelphous, effective 11 June 2019.  
 
Ms Murphy has over 35 years’ experience in senior operational and corporate leadership roles in the resources and infrastructure sectors. Holding a Bachelor of Civil Engineering from the University of Western Australia, Ms Murphy commenced as a Graduate Engineer with Clough Engineering in 1980. She went on to enjoy a 25 year career with Clough, progressing through a wide range of operational and leadership roles before being appointed to the Board of Clough Engineering Ltd in 1998. 
 
Ms Murphy joined the Water Corporation of Western Australia in 2004 as the General Manager of Planning and Infrastructure, before being appointed as Chief Executive Officer in 2008, a role she held for over a decade. 
 
During her time at the Water Corporation, Ms Murphy was responsible for managing an asset base in excess of $30 billion, and delivering almost $1 billion of capital works on an annual basis. She has a strong track record in the fields of project delivery and government, industry and community stakeholder management, with a strong focus on productivity improvement. 
 
Ms Murphy has received many accolades throughout her career including being awarded the prestigious Sir John Holland Civil Engineer of the Year Award by the Board of the College of Civil Engineers, and is an Honorary Fellow of the Institution of Engineers Australia. She was recognised for her work in water infrastructure with the International Water Association’s 2014 Women in Water award and was recently announced as the 2018/19 West Australian Business Leader of the Year at the AIM WA Pinnacle Awards. 
 
She is currently a Director of the West Australian Treasury Corporation, a Director of the Fremantle Dockers Football Club and serves as a Senate Member of the University of Western Australia. 
 
“I am delighted to announce the appointment of Sue to the Board of Monadelphous” Mr. Rubino said. “Sue is an accomplished and highly regarded leader in our industry. Her breadth of experience in corporate governance, capital works development and productivity improvement will further enhance Monadelphous’ strategic capability, and enable us to continue to grow our business and provide value for shareholders.” 

 

--- ends ---

I see this as a positive indication that MND are looking to further expand their water infrastructure business, which is an area that Sue Murphy has a LOT of experience in, and a lot of industry contacts as well. 

Mono's have been growing their Maintenance and Infrastructure Services (MIS) business unit steadilly over recent years (particularly Water Infrastructure) since before the last mining boom peaked, and have succesfully diversified their revenue so they are now no longer solely reliant on Engineering and Construction (E&C) work revenue, although they have also recently picked a fair bit of that E&C work again - with both the inflow and outflow infrastucture E&C contracts (which both include SMP + E&I - Structural, Mechanical, Piping, plus Electrical and Instrumentation work) at BHP's "South Flank" iron ore project in WA's Pilbara region. 

Oscar Oberg, Portfolio Manager of WAX (WAM Research) and co-PM of WAM (WAM Capital) & WMI (WAM Microcap) at Wilson Asset Management Group told me at their recent roadshow that he believes MND are likely to announce further significant contract wins this year, although he agreed that the buy zone for MND was closer to $17 than $20.  He said he'd also been selling some MND at around the $19 to $20 level.

The diversification of revenue is essential to managing the low points in the cycle of major E&C projects that we tend to get - where a lot of similar projects tend to get built around the same time - such as the 3 new iron ore projects being built this and next year (for BHP, RIO & FMG) and the swag of Australian LNG export projects that were all completed within the last two to five years.  Those construction peaks are invariably followed by troughs, and recurring revenue from multi-year ongoing maintenance and infrastructure management work (such as from water infrastructure management and maintenance contracts) make MND a much better company that can maintain a decent revenue base even when their E&C division is having a quiet year or two (due to troughs in the E&C/major project cycle).  

 

Disclosure:  I hold MND in all of my portfolios, including my SMSF, although I have been trimming them at over $19, and will likely trim them further when they are over $20.  I think fair value is probably around $18.50 to $19 currently.  However, they remain one of my core holdings.

 
Last edited 3 days ago
#2019 Contract Wins

28-Mar-2019:  Mono's (MND) have announced today - see here - that they have been awarded a second construction contract, valued at $104 million, at BHP’s South Flank Project.

The contract includes structural, mechanical, piping (SMP) and electrical and instrumentation (E&I) works associated with the project’s inflow infrastructure, and brings the total value of work secured by Monadelphous on this project to $212 million. Work under the inflow infrastructure contract is expected to start immediately and be completed by March 2021.

The previously announced contract win at South Flank was for similar work on the outflow infrastructure, and was worth $108 million (see here for that announcement from about 5 or 6 week's ago - on Feb 18th). 

Monadelphous Managing Director, Rob Velletri, said the award of a second contract at South Flank enables Monadelphous to realise efficiency synergies between the two packages of work, and underlined the strength of its long-term relationship with BHP.  
 
“We are pleased to secure further work on this significant project and look forward to continuing our long track record of successfully working with BHP,” Mr Velletri said.

There is more work yet to be awarded at South Flank (MND have secured the inflow and the outflow SMP and E&I work, but there's all the stuff in the middle as well which hasn't been awarded yet), and most of the large EPC contracts at Rio's Koodaideri and FMG's Eliwana iron ore projects (that are both commencing construction this calendar year) have also yet to be awarded.  MND have confirmed that they are bidding on all suitable work at all 3 projects.

 

Disclosure:  I hold MND shares.
 

 
Last edited a month ago
#Guidance

It's worth noting that MND management have a history of under-promising and over-delivering, so they tend to make conservative predictions that are relatively easy to beat, and then they beat them.  They have traditionally also talked up the risks to the business and - while not talking down their opportunities - they have not hyped up the opportunities too much.  When they're this bullish on the near term prospects of the company, it's a very good thing, in my opinion.

MND are my favourite ASX-listed company.  They have some of the best management, and they focus on profitability in every area of their business.  They are also focussed on shareholder returns and shareholder communication.  Every time I have flicked off an email to them with a question, the appropriate person within the company has replied to me within a couple of days with an answer to my query.  This is actually quite rare with larger companies I have found.  Most queries to other companies never receive a reply at all.

I have spoken to people who have worked for them also, and while MND can be a pain to work for, because they tend to have a lot more policies and procedures in place and they enforce them a lot more than most of their competitors, this is because they want to continually impress their clients with their professional, safe and efficient workforce.  There is a huge focus on safety.  Apart from the human cost, and the insurance costs, workplace injuries don't sit well with clients.  Most minesites and large construction projects pride themselves on their safety record (those that have a good safety record at least), and they value contractors who don't detract from that record.  MND therefore spend a lot of time, money and effort on training, and developing and implementing safe work procedures and checklists.  There is a culture of "safety first", which makes good business sense as well as being the right thing to do.

 
Last edited a month ago
#Guidance

20-Feb-2019:  The following is from the outlook statements accompanying MND's first half results yesterday:

Markets and Outlook

The resources and energy sectors continue to experience strengthening operating conditions as a number of global and domestic customers commit to capital investments. In the resources sector, project development activity is increasing with the pipeline of construction opportunities gaining in number, particularly in the iron ore and lithium sectors. Activity in the energy market has increased, with offshore developments entering production and a number of debottlenecking and brownfields growth projects progressing through feasibility studies.

 

The demand for maintenance services is expected to be strong as resources production in Australia remains at record levels, ongoing maintenance and support on aging resources assets continue to increase and onshore and offshore LNG assets ramp up production.

 

Investment in infrastructure is healthy, with prospects continuing in the water and irrigation market, while activity in the Australian renewable sector is buoyant as construction continues on a large volume of projects.

 

The Company is experiencing high levels of tendering activity and is in a good position to secure new work on major resource construction projects. These opportunities are expected to generate significant revenue in 2019/20 and beyond.

 

As highlighted in the financial results for the year ended 30 June 2018, the expected timing of resource construction opportunities, and the large revenue contribution earned from the Ichthys project in the prior period has resulted in the Company forecasting lower construction revenues for 2018/19.

 

Total revenue for the financial year ended 30 June 2019 is forecast to be around 10 per cent less than the prior corresponding period.

 

Productivity improvements will remain a priority as high levels of competition persist and customers focus on innovative and cost competitive solutions. The attraction and retention of labour resources will become a key focus area for Monadelphous as industry activity levels increase and the employment market tightens.

 

A strong balance sheet provides Monadelphous with the capacity to invest in the right opportunities and enables the Company to continue to progress its markets and growth strategy.

 

Disclosure:  I hold MND shares, of course.

 
Last edited a month ago
#Results

20-Feb-2019:  Mono's (MND) released their H1FY19 results yesterday, and their share price rose +4.2% to close at $17.38.  They've overshot my $16 price target, but I'm going to have to revise that target upwards anyway now that they are announcing work for their EC (engineering construction) division at South Flank.  If they secure major construction contracts at South Flank (BHP, done, with more to come), Eliwana (FMG) and Koodaideri (RIO), that adds to the valuation.  Julia Lee from Bell Direct (and the Switzer show) has estimated that each major contract won at those 3 big new iron ore projects would add roughly $1 to her valuation for MND.  That sounds like it's in the ball park to me.

MND's results summary (8 pages) can be viewed here.

Their results presentation (16 pages) can be viewed here.

Their half year accounts (33 pages) can be viewed here.

Their announcement (2 pages) of the major contract win (worth $108 million) at BHP's South Flank Iron Ore Project in WA's Pilbara region (from Monday, 18-Feb-2019) can be viewed here.

There would be at least another $200m to $300m of major construction contracts still to be awarded at South Flank, plus around $300m+ each at both RIO's Koodaideri and FMG's Eliwana iron ore projects.  MND's MD, Rob Velletri, has confirmed (during a conference call 6 months ago that I listened in on) that MND are bidding for all available work at all 3 projects.  NRW Holdings (NWH) are winning most of the bulk earthworks, roadworks, drainage and pad construction contracts, but the major construction contracts (which MND are bidding on) have all yet to be awarded, except for the $108m contract already awarded to MND for the structural, mechanical, piping (SMP) and electrical and instrumentation (E&I) works associated with the project’s outflow infrastructure.

Regarding the results just released, considering that they are cycling off Ichthys, their largest EC contract ever (completed in FY18), their EC (Engineering Construction) division was always going to have a softer year.  Pleasingly, their MIS (Maintenance and Industrial Services) division has picked up a lot of that slack.  Revenue and earnings are down on the pcp, but that was expected - cycling off Ichthys - and the numbers are not down as much as the market (or I) expected.  The best bit is the outlook statement however, and I'll try to post that in a different straw.

 
Last edited a month ago
#Industry/competitors

02-Feb-2019:  This year (2019), MND are bidding for the main construction contracts for each of the following large new iron ore projects in WA's Pilbara region:

  1. BHP's South Flank Project, which will cost BHP $4.7 billion according to this ABC News article.
  2. RIO's Koodaideri Project, which will cost about $3.5 billion.
  3. FMG's Eliwana Project, worth between $1.3 and $1.7 billion.

This article suggests South Flank is expected to cost $4.9 billion, while other articles quote the project cost as being $4.5 billion.  Articles such as this one (also from the West Australian newspaper website) confirm RIO's Koodaideri project is expected to cost $3.5 billion, while estimates for the total cost of FMG's Eliwana iron ore project range from $1.3 to $1.7 billion.

Taking the mid-points of those estimates ($4.7b + $3.5b + $1.5b), our three big iron ore miners have now committed to spend $9.7 billion in total on these three new projects.  That doesn't constitute a new mining boom but is still very significant for the contractors who end up working on those projects.

NRW Holdings (ASX: NWH) are winning the early bulk earthworks contracts at all 3 projects.  The main construction contracts - which MND are bidding on - are still to be awarded, and each one will be worth around $300 to $400 million.  Julia Lee (from Bell Direct and the Switzer show) estimates that each of those contracts - should MND be awarded them - would add around $1 to her MND valuation.  MND is widely expected to win at least one of them, and possibly more than 1.  Some of that would already be priced in, but I would still expect MND's SP to react very positively to a contract award announcement of that magnitude.

Disclosure:  I hold MND.  It is currently one of my larger holdings.

 
Last edited 2 weeks ago
#Bear Case

30-Aug-18 Straw #2

MND had provided prior guidance for at least 30% revenue growth in FY18.  They delivered 41% revenue growth so that was seen as a "beat" (they beat expectations).

It was a good set of numbers:

  • Sales revenue $1.784 B, up 41%
  • NPAT $71.5m, up 24%
  • EPS up 24% to 76.1c
  • Full year dividend 62 cps, fully franked
  • Significant improvement in safety performance
  • Strong construction revenues following surge in oil and gas activity
  • Strengthened demand for maintenance services across all sectors
  • Growth from diversification in overseas and infrastructure markets
  • Strong balance sheet with cash of $208.8 million

The share price surged initially then dropped back later in the day - and fell for the next two days.

On the 22nd DB downgraded MND from Hold to Sell, Ord Minnett downgraded from Hold to Lighten, and Macquarie said they were "Neutral" on MND.  On Thursday 23rd Credit Suisse also put out a note with a "neutral" rating on MND.   The downgrades from DB (Deutsche Bank) and Ord Minnett were what really hurt MND last week however.  Both were critical of the declining margins experienced by MND, and that NPAT was below their expectations, and both also warned of the big revenue hole left by the now-completed Ichthys project and the lack of large E&C contracts to replace it. Rob Velletri (MND's MD) is confident that work will pick up again, but not quick enough to meaningfully impact FY19 revenues.  For instance, if Mono's are awarded one or more of the large iron ore contracts next year - which are expected to be awarded in the first quarter of calendar 2019 - and these contracts are each worth $300m to $400m with the total of all three expected to exceed $1 billion- the majority of revenue would be received in FY20 (and into FY21) rather than in FY19, so would come too late to plug that Ichthys hole this FY.

However, it's not all doom and gloom.  MND's SP had to drop a dollar or 2 to reflect lower revenue and profit (and dividend) expectations for the current year, and that's now happened.

Julia Lee (from Bell Direct) reckons each one of those iron ore contracts next year that MND may win could potentially add about $1 to MND's valuation.

Yesterday Challenger (CGF) announced they've just bought another 1.3% of MND, taking their holding to 6.55%.  On Tuesday Pendal (PDL, the old BT) became substantial holders of MND.


Disclosure:  I hold MND. 

[I sold them on the day they reported - and bought them back a dollar cheaper 3 days later.]

 
Last edited 2 weeks ago
#Bear Case

30-Aug-18 Straw #1:

MND reported on Tuesday 21st August.  I read their report and listened to the webcast where Rob Velletri (MND's MD) and Phil Truman (their CFO) discussed their results and took questions from analysts representing at least 10 brokers and analysts, including Ord Minnett, Goldman Sachs, Deutsche Bank, MST Financial, UBS, JP Morgan, Wilsons, Baillieu Holst, CitiBank and Macquarie.  I am increasingly finding that these webcasts and conference calls offer valuable insights that you just don't get reading the announcements made to the ASX, and most of the insights come from which questions get asked and how they are answered.  Here's a link to the MND webcast of their conference call:

http://edge.media-server.com/m6/p/ixakiy25

It asks for your company name; some do.  That is mostly so they can introduce you if you want to ask a question.  You can put "Private Investor" for the company name.  I have often heard people introduced as "from Private Investor" as though it was a company or a publication.

OK, the main thing to come out of the MND call was just how important the Ichthys on-shore LNG project in Darwin was to MND in FY18.  That one project represented around 32% of their total revenue, or about $570m of their total revenue of $1,784m in FY18.  MND report earnings from two divisions, being (1) Maintenance and Industrial Services (MIS) and (2) Engineering (and) Construction (EC/E&C)  E&C revenue was up +54.4% on FY17 and it turns out that Ichthys was alone responsible for 60% of their total E&C revenue (which was $950m).  MIS provided the other $841m of MND's FY18 revenue.  The problem is - Ichthys is now virtually complete, with very little revenue from Ichthys expected to come through in the current (FY19) year.  Ichthys was also the last of the massive LNG plants to be completed here in Australia.

The upshot of all that is that despite MND expecting further strong growth in their MIS (Maintenance and Industrial Services) revenue, they warn it won't be enough to offset the expected decline in E&C (Engineering and Construction) revenue.  They expect the E&C focus to shift away from the Energy sector back to the Mining sector now, but the three big iron ore project contracts (including BHP's South Flank, and one each for Rio and FMG) aren't expected to be awarded until early calendar 2019 and while MND have confirmed they are tendering for all 3, we don't know if they will be awarded 1, 2, 3, or none of those.

Continued in Straw 2

 
Last edited 2 months ago
#Bull Case
  • June 2018:
  • Mono's is the best quality mining and infrastructure services company on the ASX
  • MD, Rob Velletri, owns over $27 million worth of MND shares (2,100,000 shares) so his interests are well aligned with ordinary shareholders.
  • John Rubino, their Chairman (and a previous MD of the company) has over $13m worth of MND shares.
  • They always have net cash - no net debt.  Curently sitting on over $200m in cash.
  • Succesfully diversified away from traditional mining services, and now have significant recurring revenue via ongoing maintenance and operations contracts for infrastructure assets.  Clients include governments (including federal, state & local governments), public and private companies.  They are also winning construction contracts in the infrastructure space.
  • They have significant overseas operations, including SinoStruct (large scale steel fabrication in China) and a number of JVs, including Zenviron (with ZEM Energy) and Mondium (with Lycopodium).
  • They have a long history of paying good fully franked dividends, while retaining significant cash to reinvest in their business.
  • Their acquisition history is excellent.  They don't make many acquisitions.  They are usually bolt-ons.  They are always EPS-accretive - or strategic, or both.  And they don't pay top dollar at the top of the market.  They are patient and disciplined, and they usually pay a fair price, and no more.
  • The MND share price has recently reduced 18% in the past 4 weeks, from $16.63 on May 15th to close at $13.57 on June 13th.  They are also down 31.5% from their recent $19.81 peak in late November.
  • Highly profitable company, ROE is expected to be around 18% when they report in August, and around 19% for FY19 & FY20 (source: Skaffold.Com).
  • Their share price tends to trend well, as you will see on their graph, so good to buy on dips and to trim when they get up into nosebleed territory.
  • They look good to me below $14.

6 months later - mid December 2018:  Not much has changed - still good below or around $14.  Never say never, but I can't imagine ever NOT owning Monadelphous shares.  They were one of the first shares I ever bought, and while I've traded around the edges - trimming at higher prices, and topping up at lower prices, I've always maintained a core MND holding.  Excellent management.  Profitable  Very well run.  Good dividends.  And building a really good infrastructure construction, operations and maintenance business.


Disclosure:  I hold MND shares.

 
Added 4 months ago
#Company Presentations