This post probably does not suit a charting thread.
RIO reports in US dollars, so amounts it mentions are lower than what may be reflected in Australian media, and repeated in this and other posts. Also, in respect to Koodaideri, the bulk of the funds were approved in November 2018, but a much smaller expenditure was approved in August, which could explain the early contract awards for the “Accommodation Camps Koodaideri Village” work package.
My main interest is the share valuation of NWH, and related thereto, the catalytic effect of a Koodaideri win on the sentiment of Mr Market that lifts the SP closer to intrinsic value. My view is that NWH as a business can progress very well without a Koodaideri win, because it can find $1 billion plus of turnover per year for the next three years without Koodaideri. Focusing on healthy margins is preferable to growth for growth's sake – I would prefer a $1 billion turnover at 7.5% NPAT margin to a $2 billion turnover at 3.75% margin. For a CAPEX-heavy sector, too rapid growth of turnover probably does as much harm as too little turnover – a contention that may require more words to justify than what I wrote above. What follows is a cut and paste of some thoughts that I wrote for myself recently when thinking about possible Koodaideri-related Announcements, and their timing.
Tailwinds
Rio’s global head of projects David Joyce said, in respect to the Koodaideri Project, “. . . we expect more than $3 billion will be provided to Australian companies and at least $2.5 billion of those will certainly be opportunities to WA-based companies.” See
https://thewest.com.au/business/iro...of-rios-35b-koodaideri-project-ng-b881035389z
With that sort of tailwind blowing in WA, NWH has a good chance of landing a worthwhile contract or two. Even if NWH gets nothing (unlikely), the Koodaideri Project will soak up enough mining-services capability to make it easier for NWH to succeed with bids elsewhere. Without a Koodaideri win, we can be confident that NWH will be busy for the next three years at acceptable margins of profit, and spin off enough cash to reduce debt, and reward shareholders. It will just take longer for the SP to rise closer to NWH's intrinsic value, because we will have to wait for published financial results, and Management's outlook statements.
EPS and SP Guesstimates for FY19
The NPAT for FY2019 would now be substantially predictable by the cognoscenti, with new contracts only contributing to FY2020 in any meaningful sense. My own crude calculations suggest an EPS of $1.1 billion x 7.5% divided by 370.6 shares = 22.3 cents. Normally I would pay little heed to such a crudely guesstimated EPS, but it is the same forecast EPS that one finds on the online broker sites, which comes from Morningstar, and initially from Hartleys Ltd. That is hardly an august source of estimates, but it will do for now. Another crude metric is to suggest a PER of 10 is about right for NWH, so that gives a crude valuation of $2.23 – close enough to my long-held $2.30 per share target for this tax year, so I'll stick to $2.30.
If Mr Market begins to think that FY20 and FY21 is going to be significantly better, the effect will be a higher PER applied to the FY19 forecast EPS, and that is how bullish circa $2.70 target prices can be entertained. 22.3c x 12 = $2.676.
We wrote recently about LYL and MND in comparison to NWH. Percentage wise, my gut-feel is that SP gains in MND will be low, more for LYL, and even more for NWH. We shall see what happens as the months roll on.
Timing of Koodaideri Contract Awards
Most, if not all, of the details that I have seen of the work packages give rough contract-award dates – usually stating the month. The package called “Accommodation Camps Koodaideri Village” was for 470 new rooms and 346 rooms relocated from other RIO camps, plus related infrastructures, and its suggested Award Date was February 2019. However, in December, Pindan was awarded a $45 million contract that seems like that package, although the number of rooms does not reconcile exactly to 816. This early contract award may be because funding for things that included the work camp had been approved in August, so RIO contracts functionaries may have been able to start contract-negotiations early – particularly for work related to the recycled rooms. The early granting of this contract, therefore, may not be the harbinger of other contracts finalising earlier than their target Award Dates. Read
https://thewest.com.au/business/min...lage-for-rio-tintos-koodaideri-ng-b881044061z, and derive your own take on this.
Unfortunately, I am unaware of any signs to be seen in the flight of birds that equip me to augur when to expect contracts for other packages of work to be awarded, other than to hold that it will be in coming weeks and months.
(20min delay)
