That $6bn TenderBook..., page-184

NWH's employment advertisements reads, in part, “NRW has over 23 years’ experience as a civil and mining contractor and has become a partner of choice for many of Australia’s leading resource companies nationwide.” If one reads the tender documents issued by RIO, they seem to be specified to suit NRW, which has the added advantage of a long working history with RIO. RIO has had its fingers burned dealing with light-weight contractors like BYL. As a NWH shareholder, I watch RIO fairly diligently, because of the non-price edge that NWH has earned for itself with RIO, and probably other miners to a lesser degree.

To give you an idea of the non-price edge (that modus cooperandi that we covered some months ago) look at what the request states.

Specific Scope Requirements: Suppliers wishing to be considered must be able to demonstrate their ability to complete the following tasks:

• experience in large scale mining projects of value greater than A$100M;
• large volume mass haul, 5M m3 and up to 7,000 m3 per day;
• Concrete works up to 10,000 m3;
• high Safety, Environment and Health values;
• excellent Health, Safety and Environmental Record;
• access to large earthworks machinery and ancillary equipment;
• provide experienced personnel;
• demonstrate innovative practices;
• meeting completion dates and providing a quality end product; and
• Mechanically Stabilised Earth (MSE) structural wall design and construction.

I am fairly certain that I recently read a RIO specification on a ROI that specified experience in the Pilbara, but I did not see it when I pulled down two ROIs today.

These requirements would narrow the field to a few service suppliers. However, if NWH's bid falls reasonably close to that of lower bid prices, its superior record of “meeting completion dates and providing a quality end product” could win the day. Add to this the fact that the WA Government wants more work to go to WA-based firms, and it wants to enhance Indigenous work opportunities via direct employment, and JVs. Many ROI's will include the words, “in accordance with client requirements for indigenous content”.

These things can help RIO decide to contract NWH, rather than lower-priced competitors. I have had a fair amount of experience negotiating contracts from the buy-side perspective, and I know that the decision makers often start with a preferred supplier, and they will use these “soft” factors to justify a decision that cannot simply be justified by the tendered prices.

Pbawley – maybe you could consider kicking off a new thread that attempts to predict what NPAT we can expect in FY19, FY20 and FY21. You could start of with a big picture view of revenue and NPAT margin. If we can arrive at plausible metrics for these, it is then a small step to derive EPS, and guesstimate what the DPS might be, and some rule-of-thumb-calculated SP valuation. As a kick-off idea:

....................... 2019 ...... 2020 ...... 2021
Revenue .......... 1100 ...... 1210 ...... 1331
Uplift .............................. 10% ....... 10%
NPAT .............. 82.5 ...... 90.75 ... 99.83
NPAT margin .. 7.5% ..... 7.5% …... 7.5%
Shares ............ 370.6 .... 370.6 ...... 370.6
EPS cents ...... 22.25 ...... 24.50 ...... 27.00

EPS rounded to a quarter of a cent. I selected a NPAT margin of 7.5%, because it was the mid-point between my earlier, somewhere-between-5%-and-10% hunch. I have not considered how this should vary as NWH moves beyond its current sweet spot – using fully-depreciated existing equipment and existing teams, and crediting tax-loss assets.