17-Oct-2022: Mono's have released their Annual Report today - which you can view here: https://www.monadelphous.com.au/media/5840751/221017-2022-annual-report.pdf

They have also announced that 30-year veteran Executive Chairman John Rubino is retiring, as is Peter Dempsey who has been a Non-Executive Director of MND since May 2003, so for over 19 years.

Following Mr Rubino’s retirement (these changes are all effective from the date of MND's AGM, which is Tuesday 22nd November), Rob Velletri, MND's Managing Director, will take on the role of Executive Chairman of the Board of Monadelphous Group Limited. Rob joined Monadelphous in 1989 as Group General Manager after having commenced his career at Alcoa. He was appointed to the Monadelphous Board on 26 August 1992, assuming the role of Managing Director on 30 May 2003. Rob is a mechanical engineer with more than 40 years’ experience in the construction and engineering services industry and is a member of the Institution of Engineers Australia. 

Under his guidance as Managing Director over the past 19 years, Monadelphous has become one of the most respected engineering services providers in Australia. The Board unanimously supports Mr Velletri’s appointment to the role of Executive Chairman noting his thorough knowledge of the industry, the Company and its stakeholders, his demonstrated commitment and dedication to Monadelphous and the significant and valuable contribution he has made to Monadelphous for in excess of 30 years.

Mr Zoran Bebic will take on the role of Managing Director of Monadelphous Group Limited at the conclusion of the 2022 AGM. Zoran is a highly experienced senior executive, having worked at Monadelphous for almost 30 years across a broad range of operational, financial and management roles. He is a Fellow Certified Practicing Accountant and holds a Bachelor of Business with a Double Major in Accounting and Finance. He commenced his career with Monadelphous in 1993 and has held various corporate and operational roles over that time. In 2009, Zoran was appointed to the position of Chief Financial Officer and Company Secretary, and since 2014 has been the Executive General Manager of the Company’s Maintenance and Industrial Services division.

During Zoran’s time at the helm of Maintenance and Industrial Services, the division has become a leader in the planning, management and execution of multidisciplinary maintenance services, sustaining works and turnarounds to the resources and energy sector. Through this period, the division has almost doubled sales revenue to over $1 billion per annum and strategically broadened its scope of services, geographies and customer markets.

The Board unanimously believes that Zoran’s personal attributes, Company and industry experience, financial acumen and deep understanding of the markets in which the Company operates makes him the ideal candidate to take on the role of Managing Director, working closely with Mr Velletri.

--- end of excerpt ---

You can read the full announcement here: MND-Board-Changes.PDF

This is typical of Mono's - which is one of my favourite companies - they have succession plans in place and they promote from within, so people who have been with them for decades already and know the business inside out are the ones who step up as roles are vacated, and the two guys that are leaving are retiring rather than going elsewhere.

John Rubino still owns over 1 million MND shares, currently worth over $14m (1,022,653 shares @ $13.95/share - being today's closing price = $14.26m), and he has sold some along the journey as well.

Rob Velletri owns over 2 million MND shares plus 525,000 options. Zoran Bebic will be lodging an initial director's interest notice around the time of next month's AGM, when he officially takes on the MD role, but as their current Executive General Manager of Mono's MIS (Maintenance and Industrial Services) division, since 2014, MIS being their largest division now by revenue, and their fastest growing division, I'm sure he's got a few thousand MND shares already.

MND have two divisions, Engineering Construction, and Maintenance and Industrial Services (MIS), with MIS now having eclipsed EC in terms of revenue and earnings.

Zoran Bebic, MND's current Maintenance and Industrial Services (MIS) Division Executive General Manager, will become their new Group Managing Director from the the 22nd November (MND's AGM).

https://www.linkedin.com/in/zoran-bebic/?originalSubdomain=au

221017-2022-annual-report.pdf (monadelphous.com.au)

Disclosure: I hold MND shares IRL and here on SM. One of my favourite companies, however up around $14, not one of the ones with the most obvious upside from here, so I've reduced my exposure and instead increased my exposure to companies that are more undervalued by the market. I'm happy with the Board changes announced today.

03-June-2022, 10:40am SA time, 11:10am Sydney time. Mono's are on the move again:

MND have always been a core holding of mine, a consistent fully franked dividend payer, and a company that continues to find new markets and make money. Because of their high exposure to large scale construction in the resources sectors (mining plus energy sectors), their revenue and profits can be quite lumpy from year to year. However they have developed a large infrastructure business that has a good amount of recurring revenue. They also have a number of JVs including one with Zem Energy called Zenviron - see here: Renewables (monadelphous.com.au)

I have noticed that since Labor have won the recent Australian Federal election, and the Greens have increased their presence in both the upper and lower houses, AND a number of "Teal Independents" have won seats as well (many of whom have campaigned on the need to urgently address climate change), a number of so-called "green stocks" have had a little uptick on their charts which could be the start of a positive rerating by the market. People having a nibble perhaps.

I do not for a minute think that MND is thought of as a "green stock", as their Zenviron JV represents a very small part of their overall revenue, but I think it might be A factor. Other factors include the need for further expenditure to increase the supply of gas for energy to Australia's east coast, and higher commodities (metals) prices which may result in further expenditure by miners. Another factor is that MND are well positioned to participate in increased infrastructure spending in Australia by state and federal governments. And of course, it might just be that the market is finally realising that Mono's is no longer just a construction company that only does one-off contracts; they have now become a company with diversified revenue from multiple divisions, including a decent amount of recurring revenue from multi-year infrastructure operations & maintenance (and sometimes also management) contracts.

Further Reading:

Water and Irrigation (monadelphous.com.au)

Maintenance and Industrial Services (monadelphous.com.au)

Facilities maintenance (monadelphous.com.au)

Disclosure: I hold MND here, as well as in all of my main real life portfolios. It has always been a core position of mine since I started investing around 25 years ago. I tend to load up on MND when they are sold down, and trim my positions when they are flying. They're not flying yet, but they are on their way back up.

16-Apr-2021:  Settlement of Claim

Engineering company Monadelphous Group Limited (ASX:MND) refers to its announcement dated 3 August 2020 in which it notified the market that Rio Tinto had filed a Writ of Summons against one of Monadelphous’ wholly owned subsidiaries in respect of a fire incident which occurred at Rio Tinto's iron ore processing facility at Cape Lambert, Western Australia, in January 2019.

Monadelphous is pleased to announce that a confidential out-of-court settlement has now been reached in this matter, with the settlement being covered by the proceeds of insurance. The parties consider the matter has now been concluded.

Monadelphous highly values its long-term business relationship with Rio Tinto, is pleased that this matter has been resolved amicably, and is looking forward to continuing to work closely with this very important customer into the future.

--- ends ---

[I hold MND shares.] 

Nice to see a bit of a pop in their SP today.  Plenty of ground left to regain however.  This claim was always going to be settled.  The market is funny like that.  Overreactions in both directions to news that is just really part of the ordinary course of business for companies.  This has cost MND nothing.  The entire settlement was covered by their insurance.  Back when the dispute was announced there were some people claiming that this could bring MND down, or that they would lose RIO as a key client.  No, and No.  They were doing shutdown work that included cutting and welding.  There was a fire.  There was a claim.  The claim was settled, and the entire cost was covered by Mono's insurance.  A company like Monadelphous does not place itself in a position where an incident like that could have a material effect on their ongoing viability.  They just don't.  It's what they do, and they are very good at it.  In fact, at what they do, here in Australia, they are the best. 

I continue to make plenty of money by holding MND shares, topping up when they are sold down, particularly below $10, and trimming the position when they look overpriced, like above $19/share a few years back (late 2017 and a few times in 2019), and in the past six months I have also sold some when they went above $14.  I'm not buying or selling here however, they're around the middle of their recent trading range - or a little below the middle, but not cheap enough to be topping up again.

MND are a quality company with quality management.  If you back really good management, you usually do well.

23-Feb-2021:  Monadelphous Reports 2021 Half Year Results   plus   2021 Half Year Results Presentation   and   Half Year Accounts   plus   Appendix 4D Half Year Report

At this point, MND have not updated their own website with these announcements, however when they do, you should be able to access them all from here:  https://www.monadelphous.com.au/investors/asx-announcements/

MONADELPHOUS REPORTS 2021 HALF YEAR RESULTS

Performance Highlights

• Revenue: $947.8 million*, up 19% on 2H20 and 11% on pcp
• Net profit after tax (NPAT): $31.6 million
• Interim dividend: 24cps, fully franked
• Secured $360 million of new contracts and extensions
• High level of activity in iron ore sector
• Substantial improvement in safety performance
• Strategic focus on people initiatives in tightening labour market

Engineering company Monadelphous Group Ltd (ASX: MND) today announced revenue of $947.8 million* for the period ended 31 December 2020.

The result was up 18.7% on the second half of the 2020 financial year as the industry steadily recovered from the initial impact of COVID-19, and was an increase of 11.2% on the same period last year.

The Engineering Construction division reported revenue of $460.3 million, a 68% increase on the prior corresponding period, with work progressing strongly on a significant number of resource construction projects which had experienced COVID-19 related delays in the first half of the 2020 calendar year.

The Maintenance and Industrial Services division reported revenue of $491.5 million, down 15.9% on the prior corresponding period (pcp). Maintenance activity levels early in the period were lower than usual as the industry steadily regained momentum after the initial impact of the pandemic, as well as from the effects of reduced levels of demand within the oil and gas sector.

Net profit after tax for the period was $31.6 million, with the Board of Directors declaring an interim dividend of 24 cents per share fully franked.

Despite the unique challenges brought about by COVID-19, Monadelphous continued to win new work, during the period securing approximately $360 million of new contracts and contract extensions, most notably in the iron ore sector. A large volume of project developments in execution phase together with the resumption of work scopes which were deferred earlier in 2020 and a strong appetite from customers to maximise production has seen activity levels in the iron ore sector ramp up significantly.

The Company’s 12-month total recordable injury frequency rate (TRIFR) substantially improved during the period to 3.12 incidents per million hours, representing a decrease of 16.1 per cent. This improvement was supported by the implementation of a significant number of health and safety initiatives, including a number of systems improvements and activities to reinforce line-of-fire fatal risk controls.

With the skilled labour market expected to tighten further from heightening levels of demand and unpredictable interstate border restrictions, the Company progressed a range of key talent retention, management and attraction initiatives.

While the global economic outlook in the wake of COVID-19 remains uncertain, the resources sector is expected to provide a steady flow of opportunities for Monadelphous over coming years, with the outlook for Australian iron ore investment particularly solid. Ongoing capital and operating expenditure required to sustain the high levels of production in this sector will drive strong and steady demand for engineering construction and maintenance services.

Developments in other resource sectors including lithium, gold, copper and nickel are also expected to provide ongoing prospects, and the long-term outlook for the renewable energy sector is positive.

Monadelphous Managing Director Rob Velletri said the Company had achieved a solid first half result during a very difficult period, and with its reputation as a leader in its markets, and its longstanding commitment to the delivery of safe, reliable and cost competitive service solutions, the Company is well placed to capitalise on opportunities and deal with the challenges ahead.

Note: 1 (*) Revenue includes Monadelphous’ share of joint venture revenue.

--- end of excerpt ---

--- click on the links at the top for more ---

[I hold MND in all of my main portfolios, and have done for more than a decade except for brief periods when they looked rediculously overpriced, which they certainly are not down here.]

24-Nov-2020:  2020 AGM Presentation   plus   2020 AGM Addresses to Shareholders from Chairman & MD

[I hold MND shares.]

23-Nov-2020:  Monadelphous Contracts Update

Engineering company Monadelphous Group Limited (ASX: MND) today announced it has secured new construction and maintenance contracts with both Rio Tinto and BHP in the resources sector, with a combined value of approximately $60 million.

The Company has been awarded three three-year master services contracts with Rio Tinto for the delivery of sustaining capital projects across various mine sites and port operations throughout the Pilbara region in Western Australia. The work includes structural, mechanical and piping, electrical, instrumentation and controls, and non-process infrastructure projects.

Monadelphous has also secured a three-year contract with Rio Tinto, with a two-year extension option, to provide mechanical, electrical and access maintenance services for fixed plant shutdowns at Rio’s Gove operations in the Northern Territory.

In addition, Monadelphous has secured a 12-month extension to its existing mechanical and electrical maintenance, shutdown and project services contract across BHP’s Western Australian nickel operations.

--- ends ---

[I hold MND shares.  I note that RIO and MND are still sorting out the dispute over the fire at RIO's Cape Lambert iron ore facility in WA in January 2019.  RIO are blaming MND for the fire, as MND had been performing shutdown maintenance work there just prior to the fire breaking out.  RIO are seeking up to $493m in loss and damages as a result of the fire and their inability to provide customers with iron ore for a period during reconstruction of the damaged part of the plant.  MND have professional liability insurance that covers up to $150m, but they also have limitations on liability that were written into the maintenance contract that they had with RIO at the time, which was obviously signed off on by RIO.  MND and RIO are still negotiating a mutually acceptable outcome to that dispute.  However, importantly, it has NOT stopped RIO from awarding further work to MND, as evidenced by today's announcement (details above).  The suggestion from some commentators has been that MND would struggle to continue to win new work from RIO while this dispute remained outstanding.  That suggestion was proved wrong this morning.  It is important to always identify issues in terms of whether they are temporary or structural/longer-term issues.  Large contractors like MND are always going to encounter SOME issues with SOME clients at various times, but those issues don't destroy their business model or make them worth a lot less than they were before - as long as those issues ARE temporary.  What they can do is provide us with negative sentiment that keeps the company's share price down at levels where they represent excellent value, and allow us to top up our position, which is what I was doing with MND during recent months when they were trading below $10/share.  The recovery has already begun, but there is still plenty more upside left with MND from here - in my opinion.  I'm not buying more here, but I'm expecting the value of my MND shares to be worth considerably more this time next year.]

14-Sep-2020:  Monadelphous Contracts Update

Engineering company Monadelphous Group Limited (ASX: MND) today announced it has secured construction and maintenance contracts in the resources sector with a combined value of approximately $120 million. 

The Company has been awarded the following contracts under its WAIO Asset Panel Framework Agreement with BHP:

• A contract to provide structural, mechanical and electrical upgrades at the Newman Hub site in the Pilbara, Western Australia. Work will commence immediately and is expected to be completed before the end of 2021; and
• A contract associated with the dewatering of surplus water at Jimblebar mine site in Newman, Western Australia.

In addition, Monadelphous has entered into the Olympic Dam Asset Projects Framework Agreement with BHP to provide multi-disciplinary construction services at the Olympic Dam copper mine in South Australia. Monadelphous has secured its first contract under the agreement for the supply and construction of acid storage tanks and connection to the existing operating acid plant.

Finally, the Company’s Maintenance and Industrial Services division has been awarded a contract to undertake a major dragline shutdown for BHP Mitsubishi Alliance at its Saraji Mine, located near Dysart, Queensland. The work will be completed by the end of December 2020.

--- ends ---     [I hold MND in all the portfolios I manage except my kids portfolio which only has 3 companies in it - FGX, MGG & MHH.  It is very rare that I'm not holding some MND.  I trade around core positions mostly, topping up when they're down, and trimming when they're up.  It supplements the dividends.]

Filmed on August 26, 2020:  https://www.livewiremarkets.com/wires/buy-hold-sell-4-outstanding-results-and-2-shockers

In this episode of Buy Hold Sell, Henry Jennings from Marcus Today and James Gerrish of Market Matters cast their eyes over the recent reporting season and share their views on some of the standout results.

They reveal the companies they graded as a massive fail and why, as well as those that surprised on the upside. They were also asked to pick a result that they thought was outstanding but the market may have overlooked.

MND was the first company that Henry Jennings chose to discuss in terms of companies that surprised on the upside.  He was asked by LivewireMarkets' Vishal Teckchandani:  "Let's flip it around to the A-Team.  Which report surprised you the most on the upside, Henry?"

Henry's response starts from the 3:20 minute mark.

James Gerrish added, "Yeah, we hold that stock.  And I've got to agree with Henry.  You look at Fortescue's announcement yesterday, and they're talking about the amount they're going to spend on new mine development, the amount of money they're putting in the ground.  So, it's a stock we've got in the portfolio."

[I hold MND.]

02-Sep-2020:  Broker Updates:  MND: MONADELPHOUS GROUP LIMITED

Mining Sector Contracting – Overnight Price: $11.01

Bell Potter rates (MND) as Buy –

The Monadelphous Group's FY20 result was not as bad as anticipated by Bell Potter. The result reflected material impacts from covid-19 and associated mitigation measures.

Impacts included supply chain disruptions to the Engineering Construction business and a reduction in activity levels in the Maintenance & Industrial Services business.

The broker considers all of the above largely old news and highlights the positives were new news on better-than-expected revenue, margins and final dividend.

The analyst notes cashflow was particularly strong and enabled the company to declare a 13cps final dividend, whilst also increasing the net cash balance to $116.4m (including all lease liabilities).

Bell Potter's main concern is the claim by Rio Tinto (RIO) for -$493m for losses and damages, but believes a mutually agreeable solution will be found.

The Buy rating is maintained and the target price is increased to $11.90 from $11.05.

This report was published on August 18, 2020.

Target price is $11.90 

Current Price is $11.01 Difference: $0.89
If MND meets the Bell Potter target it will return approximately 8% (excluding dividends, fees and charges).
Current consensus price target is $10.93, suggesting downside of -0.7%(ex-dividends)
The company's fiscal year ends in June.

Forecast for FY21:

Bell Potter forecasts a full year FY21 dividend of 48.00 cents and EPS of 58.80 cents.
At the last closing share price the estimated dividend yield is 4.36%.
At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 18.72.

How do these forecasts compare to market consensus projections?

Current consensus EPS estimate is 57.0, implying annual growth of 47.5%.
Current consensus DPS estimate is 41.9, implying a prospective dividend yield of 3.8%.
Current consensus EPS estimate suggests the PER is 19.3.

Forecast for FY22:

Bell Potter forecasts a full year FY22 dividend of 51.00 cents and EPS of 65.60 cents.
At the last closing share price the estimated dividend yield is 4.63%.
At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 16.78.

How do these forecasts compare to market consensus projections?

Current consensus EPS estimate is 63.0, implying annual growth of 10.5%.
Current consensus DPS estimate is 45.6, implying a prospective dividend yield of 4.1%.
Current consensus EPS estimate suggests the PER is 17.5.

Goldman Sachs rates (MND) as Neutral –

Monadelphous Group's FY20 result demonstrated strong execution and balance sheet management, comments Goldman Sachs.

Capex levered work was among the most impacted, as expected. Goldman Sachs is pleased with the company's ability to perform despite these headwinds.

The broker expects pandemic related revenue and margin headwinds to ease in FY21 and has revised its FY21 operating income up 10.4% on a stronger near term sales/margin outlook.

Target price raised to $11.00 from $9.60 due to Monadelphous' stronger than expected net cash position. Neutral rating maintained.

Target price is $11.00 

Current Price is $11.01 Difference: minus $0.01 (current price is over target).
If MND meets the Goldman Sachs target it will return approximately minus 0% (excluding dividends, fees and charges – negative figures indicate an expected loss).
Current consensus price target is $10.93, suggesting downside of -0.7%(ex-dividends)
The company's fiscal year ends in June.

Forecast for FY21:

Goldman Sachs forecasts a full year FY21 dividend of 39.00 cents and EPS of 53.00 cents.
At the last closing share price the estimated dividend yield is 3.54%.
At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 20.77.

How do these forecasts compare to market consensus projections?

Current consensus EPS estimate is 57.0, implying annual growth of 47.5%.
Current consensus DPS estimate is 41.9, implying a prospective dividend yield of 3.8%.
Current consensus EPS estimate suggests the PER is 19.3.

Forecast for FY22:

Goldman Sachs forecasts a full year FY22 dividend of 56.00 cents and EPS of 68.00 cents.
At the last closing share price the estimated dividend yield is 5.09%.
At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 16.19.

How do these forecasts compare to market consensus projections?

Current consensus EPS estimate is 63.0, implying annual growth of 10.5%.
Current consensus DPS estimate is 45.6, implying a prospective dividend yield of 4.1%.
Current consensus EPS estimate suggests the PER is 17.5.

All consensus data are updated until yesterday.  FNArena's consensus calculations require a minimum of three sources.

Overview of current broker calls on MND as at 02-Sep-2020:

• Citi, 19/08/2020, Buy, TP: $12.63, % to reach target: +13.68%
• Credit Suisse, 19/08/2020, Neutral, $10.30, -7.29%
• Macquarie, 19/08/2020, Upgrade to Outperform from Neutral, $11.57, +4.14%
• Morgan Stanley, 27/07/2020, Equal-weight, $10.30, -7.29%
• Ord Minnett, 19/08/2020, Upgrade to Hold from Lighten, $10.80, -2.79%
• UBS, 20/08/2020, Neutral, $10.00, -9.99%

[I hold MND.  I rate them as a "Buy", and believe they'll hit $14 within 12 to 18 months, and $17 within 3 years.  I'm not often wrong on this company either.  These brokers have collectively been far too bearish on MND, and they are now playing catch-up, raising their calls and their target prices.  In other words, MND is now back in a broker-upgrade cycle.  Monadelphous is one of the best managed companies on the ASX, and their management - who own a LOT of MND shares - will always find ways to make money, regardless of the environment they find themselves in.  They will evolve, as they have done in recent years into infrastructure construction and maintenance - outside of mining and energy.  I know the company very well, and I always hold MND, it's only the weighting that varies.]

18-Aug-2020:  Monadelphous Reports FY 2020 Results   and   2020 Full Year Results Presentation

Also:  Full Year Statutory Accounts   and   Preliminary Final Report (Appendix 4E)

Performance Highlights:

• Revenue $1.65 billion, H2 significantly affected by COVID-19
• Record annual revenue performance in Maintenance and Industrial Services
• Net profit after tax $36.5 million
• Strong cash flow from operations
• Year end cash balance $208 million (no debt)
• Secured $1.2 billion of new contracts and extensions
• Strategic acquisitions completed in CSG, rail and Chile
• Solid forward workload

--- click on links above for the full reports ---

[I hold MND shares]  

03-Aug-2020:  Zenviron secures Murra Warra Stage II Wind Farm contract

Zenviron is a full-service balance of plant contractor providing engineering, procurement and construction services to the renewable energy sector in Australia and New Zealand.

Zenviron, an incorporated joint venture in which Monadelphous Group Limited (ASX:MND) is a 55% shareholder, has been awarded a contract from General Electric International Inc to deliver the Murra Warra Stage II Wind Farm in regional Victoria. It is expected that Zenviron will perform approximately $80 million of the works under the contract.

--- click on the link for the full announcement ---

[I hold MND shares]

03-Aug-2020:  RIO to serve writ on MND:  Notification of filing of Writ of Summons

This concerns a fire incident which occurred on 10 January 2019 at Rio Tinto's iron ore processing facility at Cape Lambert, Western Australia, and although the writ does not specify any damages, Rio Tinto has separately informed MEA (Monadelphous Engineering Associates) that its claim is for A$493m in loss and damage. This amount comprises A$35m in material damage costs associated with the re-construction of the Sinter Fines processing facility, and A$458m for a temporary operating solution and business interruption losses arising from the alleged inability to process iron ore during the period of reconstruction of the facility.

The writ has not yet been served on MEA. Rio Tinto has invited discussions to occur prior to service of the writ, which MEA and its insurers intend to pursue.

MEA had been performing maintenance shutdown services prior to the fire commencing, and Rio Tinto has alleged that MEA was in breach of the maintenance contract, thereby causing the fire.

MEA denies Rio Tinto's allegations and claimed losses (which MEA considers have not been substantiated). Further, the contract between Rio Tinto and MEA, which governed the maintenance work performed by MEA, contains exclusions and limitations of liability which will be relied upon by MEA in defence of the claim.

MEA has public liability insurance in place with a total limit of $150m which provides cover for property damage claims and associated losses. Monadelphous is unaware of any reason why the insurance policies would not respond to indemnify MEA for liability it may have to Rio Tinto.

Along with its insurers and their legal representatives, MEA intends to fully defend Rio Tinto’s legal action.

Monadelphous highly values its long-term business relationship with Rio Tinto, and is proud of its track record providing maintenance and construction solutions to this very important customer for over two decades. The Company remains committed to working with Rio Tinto to seek a satisfactory outcome in this matter.

--- click on the link above for the full announcement ---

[I hold MND shares]

This should provide a nice buying opportunity in MND today I would expect.  I'll probably be topping up my positions.

01-Jun-2020:  https://www.australianmining.com.au/news/monadelphous-revels-in-150m-contract-win/

01-Jun-2020:  Monadelphous Contracts Update

Engineering company Monadelphous Group Limited (ASX: MND) today announced it has secured a number of construction and maintenance contracts in the resources and energy sectors with a combined value of approximately $150 million.  
 
In the iron ore market in the Pilbara region of Western Australia, the Company has secured the following new work:

• A contract under its existing BHP WAIO Asset Panel Framework Agreement associated with the dewatering of surplus water at Mining Area C;
• A three-year contract with Rio Tinto for the provision of maintenance services and minor projects on its Pilbara marine infrastructure; and
• One-year extensions to its two existing fixed plant maintenance and shutdown crane services contracts with Fortescue Metals Group.  

In addition, Monadelphous has been appointed to BHP’s WAIO Site Engineering Panel for a further term of two years, to provide civil, structural, mechanical, piping and marine services at BHP’s Mine Site and Port Operations in the Pilbara.  

In Papua New Guinea, the Company has been awarded a new three-year contract to provide minor capital project services, including civil, mechanical, structural, piping and blast and paint at Newcrest Mining’s gold mining operations on Lihir Island. Monadelphous has been providing services at Lihir Island since 2017.  
 
The Company has also secured a four-year contract to continue providing mechanical and electrical maintenance and turnaround services for a customer’s midstream operations in the Queensland coal seam gas market. 
Monadelphous Managing Director, Rob Velletri, said the Company continues to build on its relationships with long-term customers in both the mining and oil and gas sectors. 
 
“As always, we remain focused on the safe and efficient delivery of high-quality service solutions and we are pleased to continue to be recognised as a partner of choice by our customers” he said.   

--- ends ---

Disclosure:  I hold MND shares.

01-May-2020:  Market Update

Engineering company Monadelphous Group Limited (ASX: MND) wishes to provide a market update regarding the impact the coronavirus (COVID-19) is having on its business and operations, as well as the outcome of a strategic review undertaken into the Company’s Water Infrastructure business.  
 
COVID-19 operational impact 
 
Measures taken by governments and industry across the world to prevent further spread of the virus have impacted the economy, resulting in the delay, suspension, deferral or reduction of services across a range of the Company’s projects and worksites, as well as materially disrupting productivity levels. Monadelphous continues to take all necessary measures required to proactively manage the business through this unprecedented period to ensure the safety of its employees and sustain business continuity. 
 
The Company’s Engineering Construction division has experienced supply chain issues causing delays on large resources construction projects currently in progress, as well as a number of temporary deferrals to potential new construction contract award dates. In its Maintenance division, the Company has experienced a material reduction in activity levels, particularly in fly in fly out operations with customers reducing non-essential work, delaying discretionary maintenance expenditure and deferring shutdowns. 
 
While it is the Company’s intention to ensure that it continues to meet its continuous disclosure obligations, due to the heightened level of uncertainty and disruption in the economy, it remains unable at this time to provide definitive revenue guidance for the financial year ended 30 June 2020. However, should the activity levels that the Company is currently experiencing continue to the end of the financial year, revenue would be similar to that of the previous corresponding period. Margins in the second half of the financial year are expected to be significantly challenged as a result of the extent of the disruption and the impact it has had on the Company’s operations. 
 
As previously highlighted, the short- to medium-term financial performance of the business is, and will remain, dependent on the extent and duration of the impact to the Company’s operational activity and productivity levels resulting from the outbreak of COVID-19. 
 
Strategic review of Water Infrastructure business 
 
Several water projects approaching completion have recently experienced an escalation in contract disputes and disappointing levels of profitability.  
 
After undertaking a strategic and operational review of its Water Infrastructure business in Australia and New Zealand, the Company has decided to discontinue its operations in New Zealand and consolidate its east coast engineering construction operations into a single Eastern Australian business unit. The restructure will enable the Company to reduce costs and focus on improving the quality of its earnings from the water sector. 
 
As a result of the decision to refocus the business and the disappointing project outcomes, the Board of Directors will make a provision of $14 million before tax in the financial report for the year ended 30 June 2020 for project underperformance and restructuring costs.  
 
Strategic response 
 
The Company has taken, and will continue to implement, a large number of actions to protect the business during this period of market turmoil, and has implemented a targeted cost reduction plan across the business to ensure the company operates as productively and profitably as possible.

To support these cost reduction measures the Chairman, the Managing Director and the Non-Executive Directors have all agreed to a 30 per cent reduction in salary and fees for the next six months. The Executive and General Management teams have also agreed to salary reductions for the same period ranging between 10 and 20 per cent.

Monadelphous Managing Director Rob Velletri said “We will continue to work closely with our customers during these challenging and uncertain times. Our disciplined and prudent management, loyal workforce and strong balance sheet mean that we are well positioned to deal with the challenges ahead, and the opportunities that will arise in time. I am confident that the actions we have taken to refocus the Water Infrastructure business will deliver more profitable and sustainable pipeline of opportunities over the longer term.” 

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[Disclosure:  I hold MND shares.]

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.
 

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.

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.

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.

20-Aug-2019:  

Monadelphous Reports FY 2019 Results

2019 Full Year Results Presentation

Full Year Statutory Accounts

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https://www.monadelphous.com.au/

https://www.monadelphous.com.au/investors/

18-Feb-2020:  Monadelphous Reports 2020 HY Results

Plus:  2020 Half Year Results Presentation

and:  Half Year Accounts

and:  Appendix 4D Half Year Report

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.

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.

• 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.

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.” 
 

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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.

14-Nov-2019:  Monadelphous Acquires 2 Chilean Businesses