Not sure but this article today may support the EPS expansion.
Annual maintenance expenditure in Australia's resources industry is forecast to swell to $10 billion within five years, according to research group BIS Shrapnel. It describes the surge in spending as "the next mining boom".
A substantial increase in maintenance activity is expected across Australian industries over the next five years, according to BIS's Maintenance in Australia 2016 – 2031 report. It found the resources sector would be the key driver, with a 52 per cent increase in expenditure to fiscal 2021 expected, driven by oil and gas.
BIS senior manager infrastructure and mining Adrian Hart said there would be two key drivers for a $3.4 billion increase in spending from 2016's low base of $6.6 billion: the amount of maintenance spending previously deferred, and additional spending on new assets.
"In 2015/2016 we had this strange situation where maintenance activity fell despite very strong growth in mining production," Mr Hart said.
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Mining maintenance with mining and heavy industry construction
"The outcome is almost purely the result of sharp falls in commodity prices and profitability in the mining industry and the way they have responded to that to try and reduce costs right across their businesses. What we have seen in the past is when the mining sector does start to pick up in profitability, they start to put back on a lot of the maintenance they might have deferred during the cost-cutting cycle.
"So part of this response is going to be that catch up in maintenance that was deferred but a very large part, in fact the strongest part, is that we have delivered new assets." Investment legacy
About 80 per cent of the expected growth in maintenance expenditure is tipped to occur in the oil and gas sector where more than $200 billion of capital was invested in new projects over the past decade.
BIS's analysis considers fixed assets, such as rail lines and processing plants, as well as mobile equipment.
Mr Hart said generally three to five years after a new project's development, significant maintenance work kicked in. "Now we are getting into the next phase of the mining boom and that's maintenance," he said.
The forecast uptick would be a boon for the resources hubs that have struggled since the industry's unprecedented construction phase cooled, with major mining companies such as Rio Tinto continuing to cull staff to improve their cost competitiveness in a volatile market.
Mr Hart said he was confident the necessary skill base to conduct the work existed locally and therefore the surge would undoubtedly provide a healthy "stimulus" to regional hubs such as Western Australia's Pilbara and Queensland's Surat and Bowen basins. Contractors will benefit
Contractors and services companies under pressure due to fewer opportunities and lower commodity prices would also stand to benefit from any improvement in maintenance spending, with BIS forecasting the volume of contracted maintenance activity would recover as resources companies seek contractors for work taken in-house during the down cycle.
"As new enterprise bargaining agreements are being struck contractors are coming back to the miners with very competitive price offers because they have been able to lower costs in their businesses through EBAs and other mechanisms and are able to offer real value back to the companies," he said.
However, competition for that work has also been tipped to increase as industry players that haven't typically focused on maintenance turn to the growing segment.
Programmed chief Chris Sutherland told The Australian Financial Review in November the labour hire firm expected Australia's spending on maintenance and repairs would grow twice as fast as the broader economy and the group was working to tap into it.
At Seven Group Holdings' annual meeting in November, chief executive Ryan Stokes said the company's WesTrac business was starting to realise the product support and maintenance opportunities it had been targeting as mining fleets aged and production volumes of iron ore and coal increased. M&A potential
Other listed companies with maintenance exposure include WorleyParsons, Monadelphous and UGL, which was the subject of a $524 million takeover by Spanish-controlled construction group CIMIC this month.
BIS's Mr Hart said there was potential for merger and acquisition activity to increase as predators looked to enter the segment.
"There are a lot of services companies that are going to benefit over the next five years so I wouldn't be surprised if there were more M&A transactions coming along as the scope of opportunity is more broadly realised within the industry ... [including] by big construction companies that want to look back over their service offerings.
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