So after @ahpla emailed NRW and shared that we now have until Friday 23 to cool down (and possibly watch the new large buyer continue to ‘seize the day, then the next day etc , ) I thought I’d share some thoughts around Queensland and more relative to company health.
This stemmed from being concerned about the QLD cautionary report (from Feb 2018) I linked to the other day and, with great timeliness, just about everything else in my portfolio coincidentally fainting away.
I love/hate coincidences.....
Here it all seems good .
Happily earlier rumours about a pending ‘new’ coal project may have genuine weight and can possibly be traced to Golding’s current customer, Stanmore Coal, where the June 2018 quarterly reports of negotiations to further extend contracts at Isaac Plains East. :https://www.worldcoal.com/coal/20072018/stanmore-coal-quarterly-report/
“Stanmore has agreed to a contract extension with Golding Contractors Pty Ltd for FY19, including the mining operations at both Isaac Plains and Isaac Plains East.
The company is currently negotiating a longer-term contract for Isaac Plains East, post FY19. .....”..
Already partnered with Stanmore since 2015, Golding entered the existing one year agreement, worth $93 million, in June 2018 https://hotcopper.com.au/documentdownload?id=uOMxKKzFkiWRTLKhOROKAxjvTDYC6wa+zReZruBxke92GA==
So hopefully the negotiations which must be by now long standing, are with us.
Given the wording I assume the one year contract was just an interim measure to.keep the project progressing whilst the ‘serious’ deal for much longer continued to be costed and discussed..
The thought of another strong extended contract was particularly reassuring to me given the concerns replacement project work (such as NRW Holdings has identified and is targeting in Western Australia ) has not been identified in Queensland.
The analysts expect activity may fall off in 2019/2020 although the report (put out by Queensland Major Contractors Association, Stronger Futures in Construction and the Infrastructure Association of Queensland) ( here’s the link again :http://qmca.com.au/wp-content/uploads/2018/05/2018-QMPP-Report-Low-Res.pdf) says -in the long term- Queensland is still expected to “marginally outperform”the rest of Australia .
Here’s a bit from it :
“The key finding .... is ..major project work has risen by 58% in 2017/2018 to $6.9 billion......
Subject to level of funding commitments for 22 credibly proposed projects, activity in 2018/2019 is forecast to be retained at a similar level.
However, recovery in activity may be short-lived and decline again in 2019/2020 due to an identified lack of viable replacement projects.
...
The greatest threats to a sustainable pipeline of projects are the identification of investable projects, availability of funds and timely investment decisions. This year’s report highlights much lower levels of private sector investment than previous years, with $9.4 billion of projects classified as only prospective or considered unlikely to receive funding. Until positive business cases and investment decisions are made, mining and industrial projects such as those in the undeveloped Galilee Basin remain at risk.
The value of public sector projects which have positive funding announcements or are currently under procurement outstrips the private sector. The report also forecasts a significant 72% reduction in private sector mining and heavy industry projects in the next five years compared to the last. The ability of governments to identify and deliver on their planned infrastructure has therefore assumed even greater importance to the continued short- term sustainability of the major projects contracting sector.”
NRW is targeting geographical and other diversification.
Will this impact NRW?
1) as @Pioupiou wrote earlier Management here is excellent .
2)Golding is a member of QMCA http://qmca.com.au/. ..maybe the other group too ie no surprises in this report .
Taking this further it is possible general awareness of the impending sector downturn was a factor of the great purchase price?
3) This is a cyclical sector to be invested in. The report notes Queensland has been ‘storming along’ in recent years which is why flagging the retraction infers important challenges for companies doing business there
But (I presume) as we are starting from square one with Golding and have no historical precedent, over-expectations have not been priced in.
In fact we were told to expect Golding to be 60% earnings accretive and it may turn out to be a lot better than that .
(Typical example of how the creed - in all parts of the company -seems to be ‘under promise and over deliver’
The fact is NRW is already in a ‘bonus’ situation with Golding no matter where the Queensland cyce is at.
4) NB all recent company reports and presentations also flag NRW Holdings is targeting geographical and other diversities.
Historically they only say what they mean.
You can see I haven’t really been able to find the fly in the ointment.
Even the fact Ausdrill has purchased Barminco seems to represent advantages for NRW not the least being that the digestion process there probably puts Ausdrill ‘off the scenes ‘ for now in terms of the M&A trail
But the devil’s advocate perspective is really important.
RCR is in the refrigerator in long trading halt pending important news relating to major costs blow out .
Maca is fiat
Brierty went into administration last September.
Ausdrill hit a high of $3,04 just a few months back and last closed at $1.71.
Monadelphus is also contracted.
Conversely Cimic and Downer are buoyant ..
Obviously there are flies aplenty ....
(20min delay)
