08-Oct-2024: NWH-NRW-awarded-Mungari-Mining-Services-Contract.PDF

Another decent contract announced by NRW (NWH.asx), this time at Mungari (gold mine) for Evolution Mining, with an anticipated value of circa $360 million, commencing November 2024 and expected to be completed by mid-2030. The project will average 150 personnel on-site.

NRW does mining services, including loading, hauling, drill & blast, plus engineering and construction work. This Mungari contract includes load and haul, drill and blast plus construction of site supporting facilities.

A feature of this announcement is the location of the project, located in the heart of the WA Goldfields, 50km northwest of Kalgoorlie and 40km north of Coolgardie, which they have said in their announcement today: is ideally situated to allow NRW to engage with local businesses and further develop the local community partnerships established by the Mungari Operations.

Not sure why that has been added, but possibly (a) to underline that this is not a remote location and that NRW can use local Kalgoorlie / Coolgardie people to fill many of the 150-odd roles, and/or (b) to perhaps appease the locals in the wake of all of these services being awarded to NRW - a Perth-based company - instead of any of it being awarded to Kalgoorlie-based companies. However, in fareness to Evolution, NRW have an excellent reputation in the industry and are reliable, large, and have economies of scale, and will not be going broke, and these things matter. Also, NRW will likely be sourcing materials and workers from Kal, and could also subcontract some local construction services companies to do some of the construction at Mungari.

Disclosure: I hold NRW both here and in my SMSF.

15-Aug-2024: NRW-Full-Year-Results-Announcement.PDF

Plus: NRW Full Year Results Presentation.PDF

Disclosure: I hold NRW Holdings (NWH) shares. They are up +30cps at this point in the arvo today on the back of these results - at $3.49 (+9.4%), but we still have 7 minutes to go...

22-May-2024: Change-of-Director's-Interest-Notice.PDF

Let me set the scene - this $100K buy by David Joyce happened yesterday (Tuesday 21st May) - Here's what the NWH Board held prior to yesterday:

Context is important here - the only two directors there that do NOT own NWH shares were both appointed to the NWH Board in the past 2 months - Ms Adrienne Parker just nine days ago - see here: Director-Appointment-Ms-Adrienne-Parker.PDF

...and David Joyce, two months ago (on 19-Mar-2024) - see here: Director-Appointment-David-Joyce.PDF

And David has just purchased $100K worth of NWH shares on-market @ $2.75 each.

But it gets better. He did it by the book. He waited until there was a positive Contract-Awards.PDF announcement yesterday - made prior to the open as it should be - and he bought on-market along with everyone else - in an informed market.

NWH closed at $2.72 on Monday arvo. The announcement was made pre-open on Tuesday. On Tuesday NWH opened at $2.74, traded as low as $2.71 and as high as $2.78, then closed at $2.74. David paid $2.75 each for 36,363 NWH shares during the day ($100K worth). That's not signalling. That's positioning. He's on the Board now and he wants a piece of the company.

I posted a straw here about that Contract-Awards.PDF announcement yesterday - see here: https://strawman.com/reports/NWH/Bear77?view-straw=26143

Note: Unless the issue has been fixed, that link will take you to my "valuation" for NWH instead of to that straw, and the straw will be below that "valuation", so you may have to do some scrolling. My "Valuations" are more price targets with some history and some bull case. If the link system has been fixed, then it will go directly to the straw.

Disclosure: Along with 83% of the NWH Board now, I also hold NWH shares.

21-May-2024: Contract-Awards.PDF

Over the years - particularly in recent years - I've held and sold contract miners like MAH, and E&C contractors like MND, but one company that does both that I've held throughout is NRW Holdings (NWH). And that's because they are quiet achievers who do not have a high profile, rarely blow their own trumpet (they don't have promotional management) and just keep steadily growing the business and improving it over the years, including through smart and strategic acquisitions, most of them small bolt-ons.

NWH don't announce every contract they win, but every now and then they put out an announcement like today's where they bring us up to speed with a whole bunch of recent contract awards.

Nice!

I hold NRW Holdings (NWH) shares in all of my major portfolios, including my SMSF, and I also own them here in my SM portfolio. They are one of those steady growers. They almost went bust under previous management with a different business model when the last big mining boom went bust - and they got down to around 4 cents per share. I was not holding them then because they looked like they would go broke, and they narrowly missed out on that fate, and since then they have really focused on risk management, proper tendering, improving margins, and targeting work strategically, as well as maintaining a solid (strong) balance sheet. They do use debt, particularly for M&A when they do it, but they have a recent track record of paying down their debt quickly and regularly being in a net cash position, which is what I like to see.

It was their misuse of debt during the mining boom that almost sent them broke - they were buying earthmoving equipment and other gear for contracts they were winning back when margins were a lot higher and it looked like the mining boom would go for a lot longer than it did, and then when the bust came they soon found themselves stuck with a huge amount of debt and most of their equipment was sitting idle so not earning them any money. So lots of asset sales, and they just scraped through.

They do it all differently now. They own some equipment but they mostly lease equipment rather than own it and although margins have reduced across the industry for mining contractors they tend to sign up alliance-type life-of-mine or longer term contracts with their clients, and unlike Macmahon (MAH) who do that also, NWH have managed to grow revenue AND earnings, while also expanding into E&C through some well-priced acquisitions. There are issues with some projects sometimes, as there always are, but they have the management and the risk-management experience and track record more recently to navigate through or around those obstacles.

If you want exposure to a sector like Mining Services and/or Engineering & Construction - NWH do both - and both have been on the nose for a while now, so there has been some value in those sectors - with a few companies starting to get positive re-rates in recent months - we highlighted SXE here recently and their positive re-rate by the market. It's happening, and NWH isn't a tiny company any more, they now have a $1.2 Billion market cap, so they're going to get on fundies' radars when they want some exposure to these sectors as they get re-rated.

NRW Holdings - NWH - not a sexy name, but worth a look if you're into that sort of thing.

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/

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.

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.]

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.]

29-Jan-2021:  Contract Award - Nathan River Resources - Roper Bar

Plus:  H2H JV (NRW 50%) Preferred Proponent for Mitchell Fwy Upgrades

Plus - recently:  22-Jan-2021:  NRW's RCR division awarded Crushing & Conveying contract for FMG

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

09-Dec-2020:  Golding - Coronado agree on additional fleets at Curragh

Coronado and Golding Agree on Additional Fleets at Curragh Mine

NRW Holdings Limited (ASX:NWH) is pleased to advise that its wholly owned subsidiary Golding Contractors Pty Ltd (Golding) have received a Letter of Direction from Coronado Curragh Pty Ltd to increase Mining Plant at the Curragh Main Mine through the introduction of a 5th and 6th fleet in addition to its current mining operations.

All major plant and equipment to be utilised for the expanded mining operations will be supplied by Golding. The additional fleet will include Hitachi EX5600 and EX3600 excavators with 13 x Hitachi EH4000 trucks along with ancillary plant.

The award adds around $50 million to the existing contract which has an indicative value of $107 million over the remaining term to completion in September 2021. In parallel, Golding have also commenced negotiation of an extension of the expanded contract beyond this date.

NRW CEO & Managing Director Jules Pemberton commenting on the award said, “This award reflects the close working relationship between Coronado and Golding and our ability to rapidly mobilise both equipment and personnel to support our clients mine plans. Pleasingly the addition of these two fleets will support employment opportunities for around 150 new personnel. In addition, no new capital expenditure is required as the majority of the fleet is being sourced internally”.

--- ends ---

I hold NWH shares.  Mining Services companies are going to be beneficiaries of rising metal prices and the additional work that is going to be created by the extra activity that mining companies will undertake to capitalise on the higher prices they can get for the commodities that they mine and sell.  In this case Curragh is a Metallurgical Coal mine, and I'm not as keen on coal as I am on base metals like nickel, copper, zinc and aluminium, but at least it's not thermal/energy coal.  NRW Holdings (NWH) don't have a huge exposure to coal, but they do have some.  Their NRW Mining division have clients in the iron ore, gold, diamond, and lithium sectors, while their subsidiary, Golding (which this announcement is about) covers Civil, Urban and Mining, and Golding's Mining division delivers a full range of open cut mining services in the coal and metalliferous mining sectors, spanning the entire mine development and mine operations.  They offer a comprehensive, expert service from construction of mine-site infrastructure and removal of overburden and topsoil to open cut mining on both short and long-term contracts.  Golding also offers specialist mine site rehabilitation works including environmental dam construction and reclamation earthworks.  They have developed a customised IT system to support their mining operations which enables them to plan mining activities, optimise circuit performance, and make management decisions during a shift to optimise resource utilisation and productivity, and provide exceptional value for money for their clients. 

NRW (NWH) also have other divisions that have nothing to do with mining (outside of Golding), but for all of those deets its probably best to check out their website or flick through their latest presentation - which shows how their latest acquisition, Primero, extends NRW's offering within their 4th pillar, which they are now renaming, "Minerals, Energy & Technologies".  Their first three pillars are "Civil", "Mining" and "Drill & Blast". 

Golding spans both the Civil and the Mining divisions.  NRW are very active in infrastructure construction within their Civil division, particularly in rail and road construction.  They are a particularly well-run company that will not make the mistakes of the past that almost sent them to the wall due to high debt when our biggest mining boom went bust a few years back.  They do use debt selectively and carefully now, particularly for earnings-accretive acquisitions, but they always pay it down fast, and they always maintain very manageable debt levels now (when they do have debt).  It's something I watch closely with all of my contracting companies, particularly after what happened to Forge Group and RCR Engineering. 

Sometimes it's the hidden debt that takes down companies, like completion guarantees and contract penalties, which may not appear on the balance sheet until they are called on or become relevant.  Or just signing fixed price contracts to deliver projects which end up costing a lot more than what you've agreed to build them for.  That was the case with both FGE and RCR.  That gets back to risk management and how good the companies' management are at that.  And Forge and RCR's management were not very good at all, as it turned out.  Those companies that get into trouble are often expanding into new areas in which they have very little prior expertise.  That was the case with both RCR (rapid expansion into solar farm construction contracting) and Forge (expanding into power station construction).  In both cases those two took on too much work at once and were undercutting their competitors to enable them to break into the new sector (new for them), however they ended up signing fixed price contracts at prices that caused them to lose millions of dollars on those contracts.  Because they were contractually obliged to complete those projects, despite running out of money, they subsequently went broke when their banks stopped backing them.  

NRW Holdings (NWH) is an entirely different kettle of salmon.  They are sticking to what they've always done, or else when they want to expand into new areas they acquire a business that is already successfully operating in that sector, and they usually bring that company's management over into NRW to continue to run that business for them.  In other words, they don't go out of their depth, or their circle of competence.  They simply expand their own circle of competence by bringing other experienced people into it - to work for them.  They don't quote on jobs they can't deliver, and they don't quote to lose money or just breakeven just to try to win work.  If it isn't profitable work, they're not interested.  I've followed them for a number of years and I'm very comfortable with Jules Pemberton and his executive team at NRW Holdings.  He's a smart cookie, and he knows what they can do and what they can not do, and they stick to what they can do, which is quite a lot.  When it comes to large civil jobs, they will usually quote as part of a consortium of 2, 3 or even 4 different companies, which brings extra skills into the mix, but also spreads the risk.  I'm happy to hold NWH shares.

24-Nov-2020:  Takeover Offer for Primero Group Limited   and   Takeover offer for Primero Group - Presentation

plus:  Primero offer - Conference Call Detail - 11am WA time - 2pm Sydney time

Recommended Takeover Offer for Primero Group Limited

Highlights of the Offer for Primero Shareholders

• NRW announces an unanimously recommended conditional off-market takeover offer of $0.275 cash plus 0.106 NRW shares for each Primero share
• Offer price values Primero at $0.55 per Primero share(*), or a total equity value of ~$100M(**)
• Offer represents a:
  • 14.6% premium to the closing price on 23 November 2020;
  • 30.1% premium to 30 trading day VWAP of Primero shares(***); and
  • 50.5% premium to 60 trading day VWAP of Primero shares(***).
• Primero Directors unanimously recommend that Primero shareholders accept the Offer, and have agreed to accept the Offer in respect of all Primero shares they own and control(****) as soon as practicable on the day that is 21 days after the Offer has opened, in each case in the absence of a superior proposal
• Experienced Primero management team, lead by Cameron Henry to remain with the business under NRW ownership
• Offer represents value for both NRW and Primero shareholders
  • NRW: Primero adds significant Engineering, Procurement and Construction (EPC) capability to NRW’s renamed “Minerals, Energy & Technologies” business pillar
  • Primero: delivers a meaningful premium to recent market trading levels and avoids the need for a potential significantly dilutive capital raising to fund working capital required to deliver its FY21/22 contracted order book, including the continued non-payment by Wartsila on the residual Barker Inlet Power Station contract monies. Scrip consideration provides ongoing exposure to an ASX 200 company with higher liquidity, a unique and growing platform of diversified services and a balance sheet able to fund further growth
• NRW to make available to Primero an interim funding facility for up to $10M, to be available to fund working capital requirements through the Offer Period

Notes:

1. (*) Based on NRW’s closing price of $2.59 on 23 November 2020. The implied value of the Offer will change with fluctuations in the NRW share price.
2. (**) Based on NRW closing share price on 23 November 2020 and Primero on a fully diluted basis. The implied value of the Offer will change with fluctuations in the NRW share price.
3. (***) VWAP of Primero shares is calculated for the period up to and including the 23 November 2020, the last trading day prior to NRW announcing its intention to make the Offer.
4. (****) Primero directors have confirmed their intention to accept the Offer (in the absence of a superior proposal) for any new Primero shares issued upon exercise/vesting of their Primero options.

--- click on the links above for much more ---

[I hold NRW (NWH) shares.  NRW have a track record of smart and strategic acquisitions that add value to the business, and this one looks like yet another one of those.]

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.]

13-Oct-2020:  Southwest Connex awarded BORR Contract

Southwest Connex awarded Contract for Bunbury Outer Ring Road Project

NRW Holdings Limited (ASX:NWH) is pleased to announce that the Southwest Connex consortium, (comprising Acciona, NRW Contracting, MACA Civil, AECOM and Aurecon) has been awarded the Alliance contract for the Bunbury Outer Ring Road project.

NRW Contracting is a 40% partner in the Alliance.

The construction of the Bunbury Outer Ring Road will deliver vital infrastructure to provide a safer and more efficient road system for the South-West of Western Australia.

The project scope for the Alliance includes the investigation, design and construction of 27 kilometres of four lane dual carriageway rural highway connecting Forrest Highway at Australind to Bussell Highway at Gelorup including grade separated interchanges, rail and river crossings and 20 kilometres of new and upgraded local government roads.

The project is fully funded for $852 million and is expected to have a duration of three and a half years. During construction, the project will provide significant direct and indirect employment opportunities benefitting the State and local community.

Commenting on the award NRW’s CEO and Managing Director, Jules Pemberton said,

“I am delighted that following negotiations with Main Roads the consortium has been awarded the contract for the Bunbury Outer Ring Road project. This announcement marks a significant milestone in NRW’s strategic evolution to an Australian Tier 1 contractor status and specifically our desire to build a large delivery capability across the Government Infrastructure works sector.

The recent acquisition of BGC Contracting together with our existing capability in civil construction has both significantly accelerated and enhanced our ability to participate as a large construction partner in Public works projects.

We look forward to working closely with our Alliance partners and Main Roads through to successful contract completion in 2024”.

--- ends ---

[I hold NWH shares.]

19-August-2020:  NRW Full Year Results Media Release   and   NRW Full Year Results Presentation   plus   Appendix 4E and Full Year Statutory Accounts

Record Revenue, very strong cash conversion, diversified Order Book and growing Pipeline

Financial Highlights

• Record Revenue of $2,062M up 83% on FY19.
• EBITDA at $250M up 74% on FY19.
• Operating EBIT normalised for one off transaction costs and amortisation related to acquisitions increased to $140.9M up 120% on FY19 of $64.2M.
• Normalised Earnings per share increased to 21.0 cents compared to 10.7 cents in FY19.
• Net Earnings after tax normalised for acquisition intangibles increased 122% to $89.7M.
• Cash at June 30 totalled $170M; an increase of $105M in the financial year.
• Cash conversion at record high of 97%.
• Debt repayments in the year totalled $82.4M.
• Lease Debt included in the balance sheet (AASB16) reduced from $122M at the half year to $65M comprising mostly long term property leases.
• Gearing reduced to below 30% including lease debt (67% at December 2019) and to 15.8% excluding lease debt.
• Further improved Return on Capital Employed (ROCE) at 22.8% compared to 13.7% in FY19.
• The results include tax of $26.5M which will reduce current tax assets. No tax will be payable in relation to FY20.

Strategic

• Successful acquisition of BGC Contracting completed in December 2019 now fully integrated into NRW’s operations around Australia.
• Our fourth pillar – RCR Mining Technologies (RCRMT) and DIAB Engineering (DIAB) integrated into the Group and strongly aligned on growth to $500M per annum combined revenues through growth in maintenance, fabrication, shutdown and project works.
• Preferred Proponent for the $852M Bunbury Outer Ring Road project as a 40% member of the Southwest Connex Alliance. Significant additional opportunities in public infrastructure currently in tender and evaluation phase.

Operational

• Mining contracts continue to perform to production objectives agreed with clients.
• Across our coal portfolio where production levels have been relatively consistent throughout FY20, we are currently working closely with our clients to support their 6 and 12 month production forecasts. At this stage, we do not expect any material impact to our Mining business outlook as clients are both looking to accelerate production in some instances but also to continue to maintain a strong focus on costs given disruptions as a consequence of COVID-19 to the current coal market.
• Outstanding performance delivered by RCRMT including the successful delivery of the HOP9 Crushing Plant project for Fortescue Metals Group.
• In the gold sector the business has worked closely with the Gascoyne Resources management team and FTI in support of the Dalgaranga project turnaround and their recapitalisation plan. Our agreement will return $7M of cash and $12M of Gascoyne equity assuming their recapitalisation plan proceeds as planned with the balance of funds owing to be paid commencing calendar year 2021.
• Strong order intake in the year increasing the year end Order Book to $3.5B with a number of Mining contracts expected to be renewed in FY21.

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

“Before commenting on the results, I would like to thank all of our valued 7,000 strong workforce for their contributions this year. Despite the enormous challenges presented by the COVID-19 pandemic our amazing people responded with courage and determination to not only help keep themselves, their families and their colleagues safe from the virus but also continued to support the changing business requirements and working incredibly hard to help achieve another year of very strong growth.

Growing record revenues to over two billion dollars during the year is a great achievement, however the highlight for me is the strong contributions made to that growth from all parts of the business. Doubling the earnings from last year also demonstrates that we can deliver work profitably and through our disciplined approach, produce outstanding cash conversion despite the magnitude of the challenges faced over the last 12 months.

As a result of the improvement in performance and cash holdings, the Board has increased the final dividend to 4 cents per share up 100% on the 2 cents per share final dividend declared last year. The dividend will be fully franked.

The results are also good because we have acquired great businesses which have returned the investment made in those businesses in record time”

The BGC Contracting acquisition completed in the year provides three clear growth opportunities:

• Provides a demonstrable track record to address a fast growing Infrastructure sector particularly in West Australia;
• The acquisition increases the size and capability of our Mining Technologies business with a key focus on the Maintenance sector through the acquisition of DIAB; and
• Further scale, capability and diversification in both geography and commodities for our Mining Business.

Outlook

As a consequence of strong organic growth and the acquisitions completed over the last three years NRW is very well positioned to address a growing set of opportunities. Our objectives going forward remain broadly unchanged although with the strengthened organisation, we will concentrate more on growth through proven capability by:

• Addressing growing public civil infrastructure opportunities through proven delivery, our position in Bunbury Outer Ring Road and our accreditations around Australia;
• Leveraging our enlarged maintenance, OEM products and Mechanical construction capabilities through the combination of RCRMT and DIAB to accelerate growth in this through cycle market; 3
• Building on our delivery record in the Pilbara to address continued investment in iron ore;
• Retaining, recruiting and training our workforce to meet strong market demand; and
• Continuing to review options to build a broader delivery platform.

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 $12.9B, of which NRW has current submitted tenders of circa $1.4 billion.

The enlarged business is now well positioned for continued strong growth. The order book post the announcements of the Bunbury Outer Ring Road is circa $3.5 billion.

NRW is forecasting revenue of between $2.2 billion to $2.3 billion in FY21 of which $2.0 billion is from current contracts, agreed mining schedules or is expected as repeatable business in Urban, RCRMT and DIAB Engineering.

Final Dividend

The Directors have declared a final dividend for the year ended 30 June 2020 of 4 cents per share which compares to the 2 cents per share declared in the prior comparative period. The dividend will be fully franked and will be paid on 14 October 2020.

--- click on links above for more ---

[I hold NWH shares.]

31-7-2020:  NRW Holdings (NWH) have emerged from a trading halt this morning with this announcement:

Bunbury Outer Ring Road - Southwest Connex Alliance named Preferred Proponent

NRW Holdings Limited (ASX:NWH) is pleased to announce that the Southwest Connex Alliance, (comprising Acciona, NRW Contracting, MACA Civil, AECOM and Aurecon) has been named as the Preferred Proponent for the Bunbury Outer Ring Road project.

NRW Contracting is a 40% partner in the Alliance.

As Preferred Proponent, the Southwest Connex Alliance now enters a period of negotiation for the Project Alliance Agreement. Following successful negotiations Contract Award is anticipated in September 2020.

The construction of the Bunbury Outer Ring Road will deliver vital infrastructure to provide a safer and more efficient road system for the South-West of Western Australia.

The project scope for the Alliance includes the investigation, design and construction of 27 kilometres of four lane dual carriageway rural highway connecting Forrest Highway at Australind to Bussell Highway at Gelorup including grade separated interchanges, rail and river crossings and 20 kilometres of new and upgraded local government roads.

The project is fully funded for $852 million and is expected to have a duration of three and a half years. During construction, the project will provide significant direct and indirect employment opportunities benefitting the State and local community.

Commenting on the announcement NRW’s CEO and Managing Director, Jules Pemberton said, “I am delighted that the Southwest Connex Alliance has been named as the Preferred Proponent of the Bunbury Outer Ring Road project. This announcement marks a significant milestone in NRW’s strategic evolution to an Australian Tier 1 contractor status and specifically our desire to build a large delivery capability across the Government Infrastructure works sector.

The recent acquisition of BGC Contracting together with our existing capability in civil construction has both significantly accelerated and enhanced our ability to participate as a large construction partner in Public works projects. We look forward to working closely with our Alliance partners and Main Roads through the Preferred Proponent stage”.

--- ends ---

[I hold NWH shares, and I also follow MLD, who are also part of this Southwest Connex Alliance.  NWH are up +16c or +9.41% so far today - at 1:57 eastern time - and MLD is flat - currently down half a cent, however MACA (MLD) is a 10% Non-Owner Participant in the Southwest Connex Alliance, whereas NRW are a 40% Partner in the Alliance, so a lot more of the $852m in forecast total revenue for the project will flow through to NWH than it will to MLD.]

Additional note:  I like these mining services companies who also do civil construction.  It's good when they have more than one string to their bow.  Downer (DOW), on the other hand, are simplifying their own business by selling their mining services business, but that is probably the right move for them because they're so big, and so diversified, and they need to concentrate more on improving the delivery and profitability of their core business units (and mining services is not a core business unit of Downer, IMO).  I also hold DOW shares.

21-May-2020:  Trading Update & Dividend Date

FY20 Performance on track, Interim Dividend to be paid 9th June 2020  

Leading Australian Resources and Infrastructure contractor NRW Holdings Limited (ASX: NWH) is pleased to provide an update on performance to the end of April 2020.

Operations:  

• Our People – processes have been implemented across our operations to minimise risks associated with Covid-19 as outlined in our ASX announcement of the 26th March.
• Our Clients – we continue to work closely with our clients to minimise risk and deal with all challenges faced through the pandemic including the impact around border closures and managing our interstate workforce.
• Our Suppliers – there have been no material impacts on our supply chain with respect to ongoing projects, mining and drill and blast operations.
• Currently we have seen no material change to planned activities in any of the four business divisions; Civil, Mining, Drill and Blast and Mining Technologies.

Financial Performance (unaudited 10 months to April 2020)

• Record Revenue of $1.6B(*1); the result, for only 10 months, represents a record revenue for the group compared to any previous full financial year.
• EBITDA(*2) of $177M; pre adoption of AASB16.
• Continued strong earnings generation with normalised earnings, EBITA(*3) of $107M.  
• Significant improvement in net debt  (cash less interest bearing debt) at 30th April 2020 to $115M.
• A much lower AASB 16 debt of circa $60M expected to be reported as at June 30th.  Further reviews of equipment rental agreements are expected to reduce the liability recognised in the half year accounts to $122M.  

Business Commentary

• Integration of BGC Contracting progressing well: all project teams now reporting through the NRW business structure.
• Key milestone on the BGC Contracting W2B Pacific Highway contract now under the leadership of the Golding business achieved March 31st recognised by the client and consistent with expectations.
• RCR Mining Technologies (RCRMT) working with DIAB Engineering secured a $17M fabrication package for Newmont’s Tanami Expansion 2 Project to manufacture the Head Frame and Skyshaft steelwork.
• NRW Contracting (formerly BGC Contracting) and WBHO infrastructure shortlisted as one of two bidders by the WA government to tender the $215M Mitchell Freeway north extension. This follows on from the recently advised shortlisting of the Southwest Connex Alliance on the $852M Bunbury Outer Ring Road project announced on the 18th March 2020.
• Tunnel boring of the twin 8km tunnels on the Forrestfield Airport Link completed in April, a major milestone for the project which NRW is working on in Joint Venture with Salini Impregilo.

Notes  

• *1 Includes revenue from associates
• *2 EBITDA is earnings before interest, tax, depreciation, amortisation, transaction costs pre adoption of AASB16: compares to $94.6M at 30th December 2019 
• *3 EBITA is earnings before interest, tax, amortisation of acquisition intangibles and excludes one off transaction costs; compares to $62.1M in the first 6 months of FY20.

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

“I am incredibly proud of the manner in which our people have worked through the challenges of the last few months. We have had to make significant changes to the way we work but have been able to safely do that whilst supporting our clients to meet project objectives and day-to-day operational requirements.

The award by Newmont to RCRMT provides an opportunity to bring both RCRMT and DIAB Engineering (acquired as part of the BGC Contracting transaction), together to deliver this important project. The ability to deliver this work from our regional facilities, in Bunbury, Geraldton and our Welshpool facility, to a major Australian project reflects the growing capability of NRW in the Australian manufacturing sector to provide specialised capital equipment for mining clients.  

Bidding activity is high and following the BGC acquisition the pipeline continues to improve given the likely acceleration of public infrastructure projects. NRW is very well placed to address a growing list of opportunities through both its Golding business on the east coast and the significantly enhanced construction business in the west.

With respect to the outlook for FY20 we remain on track to meet our revenue guidance of $2 billion."

Interim Dividend

The company announced on the 26th March 2020 its intention to defer the interim dividend pending a review by the board to be held in August 2020. Given the continued strong performance of the business the directors have brought forward that review and have resolved to pay the interim dividend of 2.5 cents per share on the 9th June 2020.

--- click on link above for more ---

Disclosure:  I hold NWH shares.

26-Mar-2020:  6:27pm:  Trading Update and Dividend Deferral

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.

26-June-2018: NRW Operational Update

Order book now $2.05 billion, of which $875 million is already committed for delivery in FY19.

Revenue Growth expected to be 40%+ in FY19 (compared to the current financial year).

Plenty of positive news flow recently:

http://nrw.com.au/asx/

The market is starting to positively re-rate this company with the NWH SP moving up +20% in the past week (from $1.365 on 20-Jun-18 to $1.635 today, 27-Jun-18) and much of that rise has been since that announcement yesterday morning.

13-Mar-2019:  NRW Holdings (NWH) have this morning released another company presentation - see here.

This 18-page presso has been prepared for the Euroz Securities Institutional Conference - which is held every March on Rottnest Island (home of the Quokka) - a short-ish ferry ride from Perth, Western Australia, during which a number of small to mid-sized companies get to pitch their value propositions to a group of institutional and sophisticated investors.

In this presentation, NRW give a thorough overview of the company and highlight their new RCR Mining Technologies (RCRMT) division (that they snapped up cheaply from the RCR administrators recently).  They describe their Relocatable Conveyor capability and show the 11 locations globally where RCRMT have already installed Apron Feeders.  These are complementary capabilities that sit very well alongside NRW's traditional services which include crushing and screening, drill and blast, civil engineering and construction for both mining and infrastructure, and bulk earthworks, roads, drainage and construction pad preparation.  

NRW have a current order book of $2.4 billion, of which $1.1b ($1,080m) is secured revenue for this current FY.  They also have tenders awaiting award worth another $1.1 billion and a pipeline of tender opportunities worth circa $6.1 billion, which has recently reduced by $500m when their Golding division was recently awarded the $500m Isaac Plains contract extension.

They have recently identified increasing Civil opportunities in addition to the WA Iron Ore sector, which has three major new projects this year - and NRW are already working at all 3, being South Flank (BHP), Koodaideri (RIO) and Eliwana (FMG).

Disclosure:  I hold NRW (NWH) shares.  They have been very good to me over the past 12 months!

10-Mar-2020:  NRW - Euroz Presentation

20-Feb-2020:  I have posted links and a summary of NRW Holdings (ASX:NWH's) H1 Results for FY2020 in a separate straw.  This straw contains their outlook statement:

Outlook

The acquisition of BGC Contracting represents another significant milestone in the development of NRW and after the highly successful acquisitions of Golding Group and RCR Mining Technologies, delivers a further step change in scale and diversity for NRW’s business in Australia. 

As we look forward through the continuously evolving NRW and the broader industry we operate in, we have built capability across a number of areas and improved our revenue visibility: 

• We have made acquisitions which have assisted in improving our delivery capability;
• Our geographic reach has expanded, furthering our ability to deliver projects Australia wide;
• We have built on our sustainable revenue base with more annuity-style revenue in the order book;
• We are maintaining consistent revenues in our urban business, “through the cycle”; and
• We have achieved strong growth through a relatively capital light model in our Mining and Drill & Blast businesses, given these contracts are production-based and generally longer-term contracts.

Commenting on the results Jules Pemberton also noted; “Most importantly the acquisitions of RCRMT and now DIAB Engineering have set us on a highly strategic and important path of growth across fixed plant construction, product support and shutdown maintenance services critical to productive mining operations. We plan to grow this business strongly over the coming years as a combination of aging assets and the demand for maintenance services in Western Australia and Queensland is forecast to significantly grow from around $9 billion in annual spend to more than $12 billion in annual spend”.

“The traditional markets in which NRW operates continue to provide opportunities for growth, and we have secured a number of new contracts and contract extensions during the year, which places us in an excellent position to capitalise on the positive market conditions. BGC Contracting has a long history of public infrastructure delivery in Western Australia. Securing work in the infrastructure sector under Alliance style contracts is another key strategic focus and will provide further diversification opportunities to the enlarged business from calendar year 2021”.

“Our strategy of growing and diversifying our revenues through organic growth or strategic acquisitions remains our long term strategy continuing our evolution and further developing the company as a multi-disciplined “through the cycle” services business”.

The tender pipeline, now at around $10 billion, remains strong. We remain confident of improving activity levels in resources and infrastructure for the next five years.  

With this growing pipeline of work, delivery capability is critical. The combined group currently has over 100 projects around Australia supported by a workforce of approximately 6,000 people.

Following the acquisition of BGC Contracting the order book at December 2019 increased to $3.8 billion.

The company previously advised revenue guidance of $1.5 billion for the current financial year. The company now expects revenue to be circa $2.0 billion, most of which is already secured.  

--- ends ---

You have to love results delivered with a full year guidance UPgrade (full year revenue guidance previously $1.5 billion, now $2.0 billion).

I hold NWH (NRW Holdings) shares.

22-Aug-2019:  NRW Holdings (NWH) have reported this morning:

Full Year Results Press Release

Full Year Results Presentation

Appendix 4E and Full Year Statutory Accounts

Strong growth across our sectors

Diversified Australian civil and mining contractor NRW Holdings Limited (ASX: NWH) is pleased to provide its results for the year ending 30 June 2019. 
 
Highlights

Operations

• Revenue(1) of $1,126.3 million, an increase of 49% compared to the prior comparative period (pcp).
• Comparative EBITDA(2) increased to $144.0 million up 54% on pcp.
• Pre-tax earnings include a $33.5 million impairment of amounts related to Gascoyne Resources Ltd (Administrators Appointed).
• NPATA(3) up 19% to $40.4 million.
• Drill and Blast business delivered strong earnings improvement in second half.

Strategic

• Completed acquisition of RCR Mining Technologies for $10 million, funded from cash - provides significant diversification in service offering.
• Secured new Civil contracts for three major Western Australia iron ore producers – South Flank, Eliwana and Koodaideri.
• Agreement with Stanmore Coal to extend Mining services activities – increased contract value to circa $950 million with minimal new capital outlay.

Balance Sheet

• Cash holdings increased to $65.0 million, strong cash conversion at 95%.
• Structural improvement in Debt - Acquisition finance and Corporate note related debt being repaid; new debt is Asset finance for equipment to support contract extensions.
• Gearing at very modest 12.2%, an improvement over the pcp.
• Final Dividend declared of 2 cents fully franked.

 
Notes

• (1) Statutory Revenue of $1,078.1 million plus revenue from associates of $48.2 million.
• (2) Comparative EBITDA is earnings before interest, tax, depreciation, amortisation, transaction costs, Gascoyne impairment and gain on acquisition arising on the acquisition of RCR Mining Technologies.
• (3) NPATA is Net earnings before amortisation of acquisition intangibles at normal tax rates. 

Commenting on the company’s performance for the year Jules Pemberton, NRW’s Chief Executive Officer and Managing Director, said:

“Before addressing the results I wanted to reiterate that the safety and wellbeing of our people remains our highest priority. It was therefore with great sadness we reported that Jack Gerdes, an excavator operator working for Golding at the Baralaba North Coal Mine in Queensland, was fatally injured on 7 July 2019. The investigations are still ongoing and Golding has and continues to cooperate with the Mines Inspectorate, both onsite and at a corporate level, to support their investigation into the accident.

FY19 has been another year of strong growth, with a significant increase in revenue to $1.1 billion while maintaining a strong cash balance of $65.0 million. The results were, however, impacted by the impairment of pre-administration balances totaling $33.5 million relating to Gascoyne Resources (ASX: GCY) entering into voluntary administration. NRW continues to work on the project where gold output has improved significantly since the administration process commenced.

New civil work, mining contract extensions and improved performance in drill and blast have all contributed to our success over the past financial period. Our highly successful acquisition of the RCR Mining Technologies business has added to our diversified capability offering, and the services and people are now well integrated with the NRW business. This acquisition forms part of NRW’s strategy to build a broader, through the cycle services business.

2019 also marks NRW’s 25-year anniversary. NRW was founded in 1994 and has been on a fascinating journey of geographical expansion, diversification and growth. Today, NRW is a well-established and highly regarded contractor employing more than 3,000 people across the mining, energy, civil infrastructure and urban development sectors. In celebrating this milestone, we wish to thank everyone who has contributed to our success over our first 25 years.” 
 
Outlook

The order book at 30 June 2019 is circa $2.2 billion of which around $1.1 billion is scheduled for delivery in FY20 excluding any orders secured by Urban and RCRMT. These businesses work on a combination of medium and short term work and are expected to contribute at least an additional $200 million of revenue to FY20 bringing the total covered work for FY20 to $1.3 billion.

The near term tender pipeline (one-year award / commencement potential) has strengthened to $8 billion of which NRW has submitted tenders of circa $1.2 billion. We remain very confident of strong activity levels across the resources and infrastructure sectors over the years ahead.

NRW is forecasting revenue at circa $1.5 billion in FY20. 

--- click on links above for more ---

Disclosure:  I hold NRW (NWH) shares.

20-Feb-2020:  NRW Half Year Results Press Release

Half Yearly Report and Accounts

NRW Half Year Results Presentation

"Record results; more to come"

Leading Australian Resources and Infrastructure contractor NRW Holdings Limited (ASX: NWH) is pleased to provide its results for the half year ending 31 December 2019.

Highlights

• Operations
  • Revenue(1) of $808.7 million, an increase of 55% compared to the prior comparative period (pcp)
  • Comparative EBITDA(2) of $94.6 million up 27% on pcp
  • NPATA(3) up 28% to $41.2 million
• BGC Contracting
  • Completed acquisition of BGC Contracting (renamed NRW Contracting)
    • Cash payment funded through equity raised at a premium:  $116.4M
    • Net Debt assumed(4) (included $28.6M of cash):  $153.7M
    • Total consideration:  $270.1M
  • Value underpinned by a fleet of over 200 items of high quality mobile mining equipment and DIAB Engineering generating maintenance annuity style revenues
  • Integration progressing well with circa 50% of annual run rate savings already achieved of the  $15 million target
  • BGC Contracting awarded 65km of rail formation at Eliwana for Fortescue Metals Group ($138M); and additional works at Eliwana also awarded – Airstrip and Roads ($17M).
• Strategic
  • Secured $70 million of new Civil contracts for BHP Mitsubishi Alliance (BMA) at Blackwater and Goonyella
  • RCRMT has secured $171 million of work under NRW ownership (to December 19) including the award of a design and construct equipment package for a crushing plant for FMG at their Cloudbreak mine site. Acquisition of DIAB Engineering to further strengthen our service offering
  • Awarded circa $70 million Iron Bridge package for FMG and Formosa Steel (February 2020)
  • Formed Alliance partnerships for large West Australian infrastructure projects.
• Balance Sheet
  • Strong cash conversion resulting in cash holdings increasing to $122.5 million from $65.0 million at June 19
  • Net Debt increase due to assumption of BGC Contracting asset finance debt: Gearing increased to 37.8% - forecast to reduce to below 30% by financial year end
  • Interim Dividend declared of 2.5 cents fully franked (up 25% on pcp).

Notes:

(1) Statutory Revenue of $783.6 million plus revenue from associates of $25.1 million.

(2) Comparative EBITDA is earnings before interest, tax, depreciation, amortisation, transaction costs and pre-adoption of AASB16

(3) NPATA is Net earnings before amortisation of acquisition intangibles at normal tax rates

(4) Debt excludes additional lease obligations as a result of the adoption of AASB16  

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

“Despite the very positive calendar year 2019 the company has had, including the highly successful acquisitions of RCRMT and BGC Contracting, the events of the last six months remind us of the importance of ensuring the safety and wellbeing of our people. Sadly, we reported on 28 January that one of our employees in the recently acquired DIAB Engineering business sustained serious injuries on site and later tragically passed away in hospital. DIAB Engineering continue to provide support to the investigation into the incident, and to the family and their employees.

"Turning to the results, the first half performance shows another period of growth in both Revenue and Earnings across all parts of the business. The acquisition of BGC Contracting which completed in December will make a significant contribution to the second half performance and will support further business growth.

"The integration of BGC Contracting is currently our key focus across all business divisions and functions. We successfully managed the integration of the RCRMT business in the year which has delivered a standout performance since the acquisition in February 2019. We are aiming for similar results from the BGC Contracting business.

"The acquisition of BGC Contracting was very strongly supported by shareholders through the equity raise which completed at a premium, and the subsequent share purchase plan, which completed in January 2020. The structure of the transaction and very good cash conversion across the business has, in our view, strengthened the balance sheet and increased our access to equipment to support operations despite the increase in gearing."

[Continues...  Click on links above for more]

I have copied their outlook statement into a separate straw.

Disclosure:  I hold NWH shares.

20-Feb-2019:  NRW Holdings (NWH) have released their H1FY19 results this morning - see here.  The accompanying company presentation can be viewed here.  

Highlights:

Operations

• Revenue (1) of $521.1 million, an increase of 50.9% compared to the prior comparative period (pcp)
• EBITDA (2) increased to $74.3 million compared to $40.3 million in the pcp
• EBIT (3) more than doubled to $50.0 compared to $22.5 million in the pcp
• Net Earnings increased to $28.2 million compared to $15.3 million in the pcp
• Order Intake in the 6 months of circa $1.0 billion increasing total work in hand to $2.4 billion

Strategic

• Completed acquisition of RCR Mining Technologies for $10 million, funded from cash, - provides diversification in service offering
• Secured new Civil contracts for all 3 major WA iron ore projects – South Flank, Eliwana and Koodaideri

Balance Sheet

• Cash holdings increased to $82.7 million compared to $58.8 million as at June 2018
• Net Debt improved to $12.8 million compared to $34.4 million as at June 2018
• Very low gearing of 4.3%
• Interim Dividend declared of 2 cents per share, fully franked 

Notes

1. (1) Statutory Revenue of $494.0 million plus revenue from associates of $27.1 million.
2. (2) EBITDA is earnings before interest, tax, depreciation, amortisation and transaction costs.
3. (3) EBIT is earnings before interest, tax and transaction costs. 

Commenting on the results Jules Pemberton, NRW’s CEO and MD, said: “The results for the first six months are a credit to the delivery and support teams across the business. I couldn’t be more proud of them. The results reflect the continued growth in activity which saw revenues increase in the previous financial year by 95% and in the last six months by a further 51%. Delivering this scale of revenue increase profitably has been a core focus for the business teams across the group and I am delighted to be reporting their success.”

“Not only have we delivered incremental earnings growth but we have been able to maintain strong cash flows through the period to reduce net debt to $12.8 million and gearing to 4.3% despite an increase in capex driven by the purchase of key mining assets. All businesses performed on or above plan and it is worth noting that the Golding business has now generated cash equal to its acquisition cost within the first 14 months of ownership.”

Disclosure:  I hold NWH shares.

02-Feb-2019:  UBS have estimated that NRW Holdings (NWH) could be awarded up to $1.6 billion worth of civil construction contracts across the three big iron ore projects that will commence in FY19 (according to FNArena.com):

1. BHP's South Flank Project, which will cost BHP $4.7 billion according to this ABC News story.
2. RIO's Koodaideri Project, worth 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.

Just over a week ago, on January 24th, NWH announced that RIO had awarded them $65 million of bulk earthworks at Koodaideri - see here.

One month ago, on December 31st, NWH announced that they had been selected by Fortescue Metals Group (FMG) as the preferred Contractor to deliver the Stage 1 Earthworks, Roadworks and Drainage Works at Fortescue’s Eliwana Rail Project (worth around $57m) - see here.

On July 18th last year, NWH announced that they had been awarded $176m worth of contracts for BHP's South Flank project including Bulk Earthworks and concrete for the Overland Conveyors and Primary Crushers together with ancillary works relating to Non Process Infrastructure.  The Bulk Earthworks also include Access Tracks, clearing, pads and diversion drains. The Concrete works and associated detailed earthworks include placement of approximately 14,000 m³ of concrete.  The work is expected to run for 15 months from September 2018 and will employ over 350 workers at its peak - see here.

NWH are all over South Flank and have a foot in the door at both Koodaideri and Eliwana.  There is more work to come at all three projects.  

31-Jan-2019:  NRW Holdings (NWH) has announced this morning - see here - that they have agreed to buy RCR Tomlinson's Mining Services and Heat Treatment businesses for a total of $10m, which looks like a VERY good price for NWH considering RCR Mining Technologies and RCR Heat Treatment generated ~$110M of revenue in FY18 and have a track record of delivering positive earnings.  The acquisition will be EPS accretive on a full year basis, excluding integration and other one-off costs. The highly skilled and experienced management, design, manufacturing, service and maintenance teams will join NRW, providing important customer and supplier continuity.

Commenting on the transaction Jules Pemberton NRW’s Managing Director and Chief Executive Officer said “This acquisition will allow us to provide incremental services, in line with our strategic objectives to a number of core clients common to both NRW and the RCR businesses to be acquired. In addition, the annuity style income from the maintenance activities of Mining Technologies and Heat Treatment will provide a platform to continue to build a broader service offering across an expanded resources and oil and gas client base. The intention is to integrate the acquisition, including all 300 employees as quickly as possible with minimum disruption to clients”.

NRW Chief Financial Officer, Andrew Walsh, commented “Given my four years as CFO at RCR Tomlinson up to November 2013, I am very familiar with the Mining Technologies and Heat Treatment businesses and the long serving management team led by Ian Gibbs. This is a financially compelling acquisition with the businesses providing complementary services and delivering a diversified base of recurring maintenance and project revenue.” 

Just after 3pm, NRW (ASX: NWH) released a company presentation on this acquisition - which can be viewed here.

As NRW's CFO said (see above), "This is a financially compelling acquisition..."  Indeed.  They got a LOT for their $10m !!

NRW Awarded BHP South Flank Contract (18th July 2018)

NRW awarded South Flank Precinct Bulk Earthworks & Concrete contract.  

NRW Holdings Limited (ASX:NWH) is pleased to announce the award by BHP Iron Ore of the contract for Bulk Earthworks and Concrete works at the South Flank Precinct project.

Works to be undertaken by NRW include Bulk Earthworks and concrete for the Overland Conveyors and Primary Crushers together with ancillary works relating to Non Process Infrastructure.

Bulk Earthworks also include Access Tracks, clearing, pads and diversion drains. Concrete works and associated detailed earthworks include placement of approximately 14,000 m³ of concrete.

The contract is valued at approximately $176 million and is expected to run for 15 months commencing onsite in September 2018. At peak over 350 workers will be required on site. Plant and equipment required will comprise internally sourced fleet together with a range of hired equipment.

NRW CEO and Managing Director Jules Pemberton said, “The award of this contract is particularly pleasing given the long standing association of NRW and BHP on resource projects and recognises NRW’s experience and capability in delivering projects in the Pilbara. The contract will also provide opportunities for employment and procurement for the areas Traditional Owners and local businesses”.

Ric Buratto, Executive General Manager of the Civil & Mining business commenting on the award added, “This is a great win for the business, the core project team is in place and key equipment is being made ready for early deployment to the project”.

The South Flank Precinct is located approximately 120kms north west of the town of Newman in the Pilbara region.

The market liked it.  NRW Holdings (NWH) rose 9.55% today on this news.  A $176 million contract is a decent contract, even for a company like NWH who have an order book of over $2 billion, and it's big enough to "move the dial".

I hold NWH shares.

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.

23-Dec-2019:  Contract Award Fortescue's Eliwana Mine & Rail

MAJOR CONTRACT AWARD – FORTESCUE’S ELIWANA MINE AND RAIL PROJECT

NRW Holdings Limited (ASX:NWH) (NRW or the Company) is pleased to announce that BGC Contracting (now successful acquired by the Company) has been awarded an infrastructure contract with Fortescue Metals Group at its Eliwana Mine and Rail project located in the Pilbara region of Western Australia.

The new contract will support the development of 143km of rail for the Eliwana project. The scope includes the construction of circa 65km of rail formation, including earthworks, roadworks, drainage works and construction of bridges and precast structures.  

The new contract value is circa $138m with completion of the project scheduled for late 2020.

Greg Heylen, BGC Contracting CEO, said: "We remain committed to supporting the safe delivery of this important project for Fortescue and this award continues our long-standing track record of delivering mine infrastructure projects in the Pilbara region.”

Jules Pemberton, NRW’s CEO & Managing Director, said: “Following the successful acquisition of the BGC Contracting business, NRW’s operational delivery capabilities in the Pilbara are further enhanced, through the addition of the highly skilled BGC workforce into the group, together with the strong technical skillset to safely and successfully deliver the large bridges and concrete structures required on the project.”  

Mobilisation will commence soon with an expected peak workforce of 400, utilising over 140 pieces of major plant in the process. 

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This is another $100m+ contract that DOES move the dial.  In this case, it's worth around $138m and does show how the very recent BGC acquisition is going to enhance NRW as a company.  NRW are VERY busy currently, and I hope they can keep all of those plates spinning.  As a shareholder, I'm betting that they can.

NRW (ASX: NWH) closed at $3.23 today (24-Dec-2019 - Merry Christmas all), and they have an SPP open for existing shareholders to apply for up to $15K worth of shares at $2.85 each (being an 11.8% discount to their current SP, or - to put it another way - they closed today 13.3% above the $2.85 SPP price).  The SPP is supposed to be capped at $10m, so I expect a decent scale back on this one.  I've applied for my full $15K of course. 

Another company I hold, Northern Star Resources (NST) also opened their own SPP today (24-Dec-2019) and that one is priced at $9 and is to help pay for their purchase of 50% of KCGM (which includes the Kalgoorlie Super Pit and associated tenements) from Newmont GoldCorp. That acquisition occurred reasonably quickly after Saracen (SAR) bought the other half of KCGM (Kalgoorlie Consolidated Gold Mines) off Barrick Gold recently.  Barrick and Newmont are the two largest gold mining companies in the world (both are listed in the US and Canada), and yet they were both happy to get out of that Australian JV and leave the remaining Super Pit gold for Australian listed gold mining companies (SAR & NST) to dig up.  The management at both SAR and NST are very switched on, and I don't think they've overpaid - I think they'll both do well out of this one.  NST closed at $10.79 today, being 19.9% above their $9 SPP price.  That's another one that MIGHT be scaled back, although Bill Beament has mentioned that he might increase this one to more than the initial $50m SPP target.  In NST's case, their SPP is for up to $30K worth of shares per eligible shareholder.  Once again, I'm applying for my full $30K.  If I get my full $30K (no scale back), that'll be peachy, although I'll be happy with whatever I do get.  Sometimes it's worth having a small holding in companies that tend to do these earnings accretive acquisitions along with discounted SPPs.  You can sometimes get lucky and get to build a decent position at a decent discount to the prevailing SP.  I already had decent positions in both NWH and NST, but I also had just $600 worth of NST shares in another portfolio that I manage for a family member (in her name, not mine) and I'm applying for $30K of NST for her also. Like me, she might not get them all (if there's a scale back), but she'll get something.

24-Dec-2018:  Today's announcement that NRW Holdings (NWH) is supporting their client Gascoyne Resources (GCY) with extended payment terms (~75 days) and a $12m loan - to be repaid by the end of 2019 - is a positive in my view.  See here for NWH's announcement.  GCY's update (also released today) can be viewed here.

There is no doubt that GCY is struggling.  They have high costs and 2019 is going to be a tough year for them with projected AISC (all-in sustaining costs) of between A$1,220 to $1,320 per ounce (oz) of gold produced.  With the A$ gold price still up around $1,700/oz, they are still going to be profitable, but they're certainly not going to be one of Australia's lowest cost gold producers in 2019.  One of the reasons for the high costs is their high 14:1 strip ratio, which is expected to drop substantially to around 5.5:1 (5.5 to 1) from 2020 onwards.

Side-note:  GCY's flagship project is called Dalgaranga, the traditional area name, but all of GCY's pits and prospects are all named after brands of Gin.  Dalgaranga includes the Gilbeys, Plymouth and Sly Fox pits and the project area includes the Tanqueray, Golden Wings, Vickers, Caorunn, Bombay, Beefeaters, Hendricks, Seagrams, and Gordons targets/deposits.  They also have their Edgerton Gold project.  Edgerton is another gin brand.

While the market is taking this negatively (selling down NWH to $1.40 earlier today, -9.7%), there are plenty of examples where this sort of company-to-company assistance has been beneficial for both parties.  MACA (MLD) supported Regis Resources (RRL) after their one-in-100-years flooding event that left their main open pit full of water.  MACA immediately got to work restoring the pit to a usable condition - which took months - and allowed Regis to defer all payments until their operations were back in full swing and they had cashflow again.  MACA also kept Atlas Iron (AGO) afloat during the darkest days of the iron ore bust - when ore prices were well below AGO's operating costs.  MACA reduced their rates substantially in return for a profit sharing agreement that kicked in only after iron ore prices rose back above AGO's cost of production (~A$60/tonne at the time), which allowed AGO to continue as a going concern.  Both companies benefitted from that arrangement during the remaining life of those iron ore mines (which are now mined out).  Regis is still going strong, and MACA are still Regis' full-service mining contractors across all of their gold mines.

23-Dec-2018:  Straw #2 of 2.

Continued from "FAL Project Issues" Straw #1...

The revenue that NRW have factored in for this project is no more than 10% of their total order book (WIH: work in hand) by my calculations.  This is not a make-or-break contract for NRW.  It is worth up to $240m to them (in revenue) and their WIH at last report was $2.4 billion, with over $1b to be delivered in FY19.  It is a significant contract, but they have a lot of other work, and the issues with the FAL project are not attributable to NRW.

NRW are going to get paid, one way or the other, and even if FAL turns out to be a loss-making project for them, it won't break the company.  They have acknowledged the media reports this past week and reaffirmed their upgraded guidance from last month, including a 45% increase in first half revenue and a 100%+ increase in earnings (compared to H1FY2018).  The fast demise of RCR has got a lot of people spooked it seems.

The guidance that NRW (ASX: NWH) reaffirmed this week after the media reports on the FAL (Forrestfield-to-Airport-Link) project is the upgraded guidance they provided on 20th November ahead of their AGM on the 21st.  That announcement (the guidance update/upgrade) can be viewed here.

Disclosure:  I am a holder of NWH shares, as I think they are one of the better mining and civil engineering and construction contractors on the ASX currently, and they are in an upgrade cycle, and have recently re-established dividend payments.  I was trimming my position above $2, and I will be looking to top-up again below $1.50 if they get there.

23-Dec-2018:  Straw #1 of 2.

Seasons Greetings everyone.  Have a happy and safe festive season, and may 2019 be a better year for one and all.

Last Wednesday, December 19th, NRW Holdings (ASX: NWH) got a "please explain" letter from the ASX after they noted a ~15% drop in their SP.  NRW's response can be viewed here.

They also addressed the media reports directly - which can be viewed here.

The media articles themselves can be viewed by clicking on the links below:

http://www.abc.net.au/news/2018-12-18/perth-airport-link-delayed-by-one-year-after-sinkhole/10630416

http://thewest.com.au/business/construction/nrw-salini-impregilo-have-claims-against-pta-over-delays-in-forrestfield-airport-link-ng-b881055737z

http://thewest.com.au/business/infrastructure/state-government-pushes-forrestfield-airport-rail-link-timetable-out-an-extra-year-after-sinkhole-setbacks-ng-b881054096z

NRW closed down -14.4% on the day, and were down 15% for the week.  The main new news is that the WA Transport Minister Rita Saffioti has now said that construction will likely take an extra year, and we now know it was the owners of Perth Airport who forced work to stop for months while they flew experts in to assess the safety aspects of the project and the risks of damage to Perth Airport infrastructure.

See here for the FAL project's official site.

The repair to the sinkhole details/scope is also new, but it will be Salini Impregilo's (SI's) problem, or their insurers.  SI are the tunnel boring operators.  NRW are 20% partners in the JV, very much the junior partners, because they have a fairly small role compared to SI, the Italian company who own the other 80% of the JV.  NRW lay the rail lines once the tunnelling has been completed, and also perform construction work at the rail stations and the declines.  All of the major project issues have been related to the tunneling, which is all down to SI.  As supposed tunnelling experts, they must have insurance for these events.  It's a big project, but NRW's role isn't as big as people think.

Continued in 2nd "FAL project issues" straw...

Early June 2018:  NRW Holdings (NWH) almost went broke (due to high debt) when the last mining boom went bust, but they survived, and would now be debt-free, except they acquired the east-coast Golding business in 2017.  When they bought Golding, the market initially got very excited and we saw a great run-up in their SP.  They have come back a long way since then, and are now quite reasonable value in my opinion (at around $1.20 to $1.40).  This is a business that has succesfully completed a turnaround (and we know they don't always turn around), and has moved from being a WA-only business that predominantly did mining services work to now being a national business that generates more revenue from their "Civil" division than they are from their "Mining" division.  At this stage, they still earn more from mining than from civil because there are better margins in the mining work despite the cost-cutting that the miners have been undertaking over the past few years.  They also have a much smaller third division, "Drill & Blast" which has much slimmer margins, but the D&B business enables them to offer a full suite of services to mining clients, so it is important from a strategic point of view.  

NRW Holdings's Macquarie Australia Conference Presentation, May 2018

NRW have paid good dividends in prior years, but don't currently pay any.  I think they are likely to announce the resumption of dividends with their full year result in August and if that occurs it should give the SP a little kick-along.  They are out of favour currently, but I see no reason why they should be.  

NRW - Projects - Roy Hill Rail Project

With a long history of the succesful completion of a number of rail projects, NRW are well positioned to capitalise on future rail projects in Australia, and as we enter a period of increased infrastructure spending, particularly on the east coast, I'm keen to lock in some exposure to that thematic.  NRW Holdings (NWH) does not look expensive here, and we have multiple ways to win from here.

Disclosure:  I hold NRW Holdings (NWH) shares.

Edit:  Addition:  11-Sep18:  NWH was trading around $1.30 to $1.40 when I wrote that.  They closed at $2.09 today.  I've been trimming my holdings at prices over $2.00.  I still hold NWH, but not as much as I did.

24-Sep-18:  NWH started paying dividends again with their most recent report.  The dividend is small, but it's the first one since 2014.  For their dividend history, see here.

I still hold NWH.

29-Nov-2019:  As I said in my straw about this acquisition yesterday, I thought the market reaction would be positive.  It has been.  NRW Holdings (NWH) have emerged from their trading halt with the following announcement:

NRW successfully completes $120M Placement

Highlights:

$120M ACQUISITION PLACEMENT PRICED AT A PREMIUM

NRW Holdings Limited (ASX:NWH) (NRW or the Company) is pleased to announce that it has received commitments to place 42.1 million new fully paid ordinary shares in NRW (Placement Shares) at an issue price of $2.85 per Placement Share, to raise $120M before costs (Placement).  The net proceeds from the Placement are intended to be put towards the acquisition of BGC Contracting Pty Ltd (Acquisition). The issue price represents a:

• 1.4% premium to NRW's adjusted closing price of $2.81 on 27 November 20191, being the last trading day prior to NRW entering a trading halt in connection with the Placement; and
• 5.2% premium to NRW's adjusted 10-day volume weighted average price of $2.71, up to and including the last trading day prior to the trading halt.

Jules Pemberton, NRW’s CEO & Managing Director, said:

“I am extremely delighted with the success of the Placement which was very strongly supported by investors who clearly share our enthusiasm for the acquisition of BGC Contracting, which represents a value accretive step change in scale and diversity for NRW’s business across Australia at an attractive value.  

We are particularly grateful for the support of our existing shareholders and pleased to welcome a number of new, high quality institutions onto the NRW register.  

NRW’s eligible shareholders will have an opportunity to participate through the share purchase plan with details to be sent to shareholders in the coming weeks.” 

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Click on link above for more.

Disclosure:  I hold NRW Holdings (NWH) Shares, which are up around +8.5% today - so far - on the back of this news.  It is unusual for companies to raise capital at a premium to their last traded price, but such is NRW's recent record of positive acquisitions, that they were able to do so on this occasion, as the market correctly assumed that the SP would open even higher than the placement price when they resumed trading today.  It did.

28-Nov-19:   NRW - BGC Contracting Acquisition & Placement

Also - NRW - BGC Presentation

NRW have made a couple of very smart acquisitions in the past couple of years, particularly Golding (which gave them an established east coast presence), plus RCR Mining Technologies and RCR Heat Treatment.  

BGC Contracting looks like another good one.  I think the market will like this one as well.  We shall see when they emerge from this trading halt (which was called to arrange the $120m placement and finalise the $10m SPP).  Importantly, due to expected strong cashflows over the next 12 months, NRW expect to have reduced their gearing back down to below 30% ND/E (within their target range) within that first year. 

It was high debt that sent their SP down to a low of only 5 cents per share in early 2016, and they have management in place now who aren't going to allow that situation to repeat (high debt almost sending them to the wall when work volume reduces significantly).  

While I expect the market to like this latest acquisition, the actual SP response could be somewhat muted, because they confirmed that they were close to finalising this acquisition back on November 4th, and the SP has risen over 25% since then (from $2.25 to $2.83), so it is very likely that this positive news is mostly already priced in.  What could drive the SP even higher are the details, as follows:

TRANSFORMATIONAL ACQUISITION OF NATIONAL CONTRACTOR BGC CONTRACTING

Highlights:

• NRW to acquire 100% of BGC Contracting for an equity value of $116.4M and an implied enterprise value of $310M (excluding net cash flow generated from the economic effective date of 31 August 2019 of ~$25M).
• BGC Contracting provides services to the resources, energy and infrastructure sectors across three core businesses: Mining, Construction and DIAB Engineering.
• Strong strategic fit adding significant scale through an expanded service offering to a high-profile client base with a long track record of contract renewal and extension.
• Significant strengthening of NRW’s “Mining Technologies” pillar through the addition of DIAB Engineering, which provides specialist industrial engineering, shutdown maintenance and fabrication services and generates annuity style revenues.
• Value underpinned by a fleet of over 200 items of high-quality mobile mining equipment with a book value in excess of $200M.
• BGC Contracting’s existing contract portfolio and order book of ~$1.5B delivers a step change in scale.
• Good visibility on FY20F earnings – expected to generate revenue of ~$850M, EBITDA of ~$100M and earnings before tax (and synergies) of ~$29.5M1.
• Targeting pre-tax cost synergies of $15M pa (excluding integration and other one-off costs).
• Highly EPS accretive: >14% pre synergies and >25% post synergies driven by consolidation and reduction in duplication, including facilities and systems.
• Combined order book of ~$4.0B, including ~$2.2B scheduled for delivery in FY20.
• Conservative funding structure with gearing returning to target (below 30%) within 12 months of Acquisition – through expected strong cashflows.
• BGC Contracting operates a contract which includes an option for the client to acquire certain fleet which, if exercised, will not materially impact the value generated from this transaction (further details provided below).

Client Option:  A BGC Contracting client holds an option (Option) to acquire all or part of the associated mining fleet used to provide contract services to that client. The contract includes the provision of contract maintenance services and mobile plant hire (to extent not acquired) which are expected to continue, whether or not the Option is exercised.

The mining fleet deployed on this contract forms a material part of BGC Contracting’s assets (PP&E) and asset finance obligations (debt) which in turn contributes materially to the depreciation costs incurred by the business and therefore to EBITDA. However, given the pricing structure the loss of the depreciation, associated interest costs and margin, should the client exercise the Option, does not result in a material impact on net earnings.

The exercise of the Option would reduce net earnings (pre-tax) by circa $3M per annum and PP&E and debt by circa $154M respectively.  

Jules Pemberton, NRW’s CEO & Managing Director, said:  “The value generated from this transaction is highly compelling for NRW under either scenario. In the event the Option is exercised, we will benefit from an improved balance sheet and enhanced acquisition metrics.” 

Click on links above for more.

Disclosure:  I hold NRW Holdings (NWH) shares.

20-Nov-2018:  NWH are in an earnings upgrade cycle, and have presented a very rare spot of green in a sea of red today.  They are up over 10% today as I type this (back over $2) and there is good reason for that.

Back on the June 26, they said: 

The order book now includes around $875 million of work secured for delivery next financial year with total revenues in FY19 expected to exceed $1.1 billion.

NRW’s West Australian civil business is well placed to participate in the upcoming major iron ore replacement and sustaining tonnes projects, the first of which is expected to commence during the first half of the 2019 financial year.

Jules Pemberton, Managing Director and CEO said, “NRW continues to be very well placed to capitalise on the significant strength in the Australian resources and Infrastructure sectors. Our increasingly diverse and geographic service offering is further broadening and currently includes projects for key clients across the bulk commodities, lithium, gold, public infrastructure and urban development sectors.

With an order book of $2.05 billion and $875 million already committed for delivery in FY19, we are well positioned to expect revenue growth in excess of 40% over the 2018 financial year.”

Today's announcement, which can be viewed here, contains the following guidance for the first half (the current half):

• Revenue is expected at around $500 million - up 45% on the same period last year
• EBITDA is expected to be around  $70 million compared to $40.3 million in the prior comparative period
• Earnings are expected to be circa $45 million, an increase of 100% over the same period last year.

NRW CEO and Managing Director Jules Pemberton said, "Despite some weather impact on Queensland projects during October activity levels for the year to date remain on track to deliver full year revenue in line with our guidance of $1.1 billion. I am exceptionally pleased however with our operational performance so far this year which has continued to improve across all parts of the business and is clearly demonstrated in our earnings outlook”. 

Revenue guidance is one thing, but we now have profit guidance as well, which is much more important, and the news is very good.

Disclosure:  I am a happy NWH shareholder.