FYs 19 and 20, page-2

Hi @Pioupiou,

Thanks and agree - time now to look at fy2019 in more detail. I know you know this already but the 320m SOI is before the Goldings raising and it might be worth using 366m (might not be exact, I think i just kept a tally myself so might be missing a few mgmt performance shares , but it is 12% greater than your number so material to your per share forecasts).

My main focus now is the margins for the different mix of work as it comes through - only because the breakdown and historical EBIT margins for the divisions are fairly visible and we can adjust as new contracts are won.

The challenges of tightening labour and equipment are a bit more interesting maybe? We could probably just see that as a small drag and maybe reduce the margins by a little. However, maybe there are reasons to assume NRW can minimise the impact. Going back to 2011 it’s easy to find articles that remind us the situation was similar for labour, and the company managed well. Again, like now, the mix of work (Civil being lower margin) also had an impact.

Also, it’s a relatively minor point but I’m inclined to remove the FAL $68m revenue and $1m profit from the 2018 number when working out margins from 2018 and make an adjustment going forwards as so far that makes things look worse than they are ($1m margin from $68m+$25mshare of revenue). I’ll assume 2019 revenue for FAL will be similar to 2018 but it will also then be a smaller share of overall revenue.

I’ll change my recommendation to Hold while we see what happens with the expected IO contract wins. Given the high probability of those wins we could factor them in and it’s probably a buy still, but it might be good to draw breath! I’m still hopeful that we’ll get one of the infrastructure contracts that we are ‘well placed for’ out of the blue and that will change everything.

Cheers
Pb