NRW Holdings Limited

NWH Details

NRW Holdings Limited (ASX: NWH) provides diversified contract services to the resources and infrastructure sectors. The group comprises NRW Civil & Mining, Golding, Action Drill & Blast, RCR Mining Technologies, DIAB Engineering and AES Equipment Solutions. The company has a market capitalization of ~$714.21 million as of 11^th June 2021.

H1FY21 Performance – For the First Half Ended 31^st December 2020 

For the first half ended 31 December 2020, revenues including revenue generated by associates were reported at $1,168.0 million (statutory revenue at $1,137.7 million) versus $808.7 million (statutory revenue $783.6 million) in pcp. Revenue growth indicates both the BGC Contracting acquisition and continued organic rise across the business. Further, Group EBITDA totalled at $132.8 million, up 14% YoY on $116.4 million in the previous year. Operating EBIT came lower than the pcp due to the impact of COVID-19 on projects primarily located in the Pilbara region of Western Australia. Amortisation of acquisition intangibles grew on the back of BGC Contracting acquisition. Non-recurring transactions include Gascoyne Resources recapitalisation and the impact of the cessation of activities at Altura. Further, normalised NPATN totalled $37.0 million versus $41.2 million in the pcp indicating the challenging operating environment due to COVID-19 measures.

The Board has decided to pay an interim dividend of 4 cents per share, an increase of 60% on the pcp.

Financial Snapshot (Source: Company Reports) 

Outlook

The company has reported phenomenal growth over the last four years driven by both continued growth in the company’s core markets and the strategic acquisitions of Golding, RCRMT and BGC Contracting. It expects growth momentum to continue on account of increasing expenditure on infrastructure projects, strong demand for commodities and contribution from the recently announced Primero acquisition.

The Order Pipeline continues to be strong driven by the expectation of further Infrastructure projects from federal and state. The Pipeline of tenders and prospects forecasted to be awarded in the next 12 months has jumped to $14.1 billion of which circa $5 billion are currently submitted tenders. Primero has an order book of circa $165 million and holds preferred EPC contractor status in multiple projects totalling around $1 billion. Moreover, the company continues its forecast revenue of between $2.2 billion to $2.3 billion for FY21.

Key Risks

Broadly, the company is exposed to the risk assessment in the tender and contracting phase, project risks, treasury management and credit risks. Further, the overall financial risk strategy aims to ensure appropriate funding levels, approved treasury directives to cover ongoing project requirements and to allow flexibility for growth. The financial instruments in the company mainly comprise of interest-bearing debt, cash, trade receivables, and payables.

Valuation Methodology: Price/Earnings Per Share Based Relative Valuation (Illustrative)

Technical Overview:

Weekly Chart –

Source: REFINITIV

Note: Purple colour lines are Bollinger Bands® with the upper band suggesting overbought status while the lower band oversold status, and yellow lines are Fibonacci retracement lines which measure price rebound and backtrack. https://www.bollingerbands.com/

While remaining in down trend, the stock has given a weaker close for the ongoing week at $1.56. The technical indicator RSI with a reading around 32 suggests weak momentum for the stock while being near the oversold zone.

Going forward, the stock may have resistance around a 38.2% retracement level of $1.94 whereas support could be around the lower Bollinger band of $1.31.

Stock Recommendation

The stock declined by ~23.5% in 9 months. It has made a 52-week low and high of $1.490 and $3.190, respectively.

We have applied P/E based relative valuation (on an illustrative basis) and the target price reflects a rise of low double-digit (in % terms). We have applied a slight premium to P/E Multiple (NTM) (Peer Average), considering a decent liquidity position which could help the company in taking strategic decisions for future growth. Also, the company has a better asset turnover ratio at 0.94x in H1FY21 versus the Industry median of 0.33x.  

Considering the aforesaid facts, current trading level, expected pipeline projects, future growth opportunities, we give a “Buy” recommendation on the stock at the current market price of $1.56 per share, down 0.320% on 11^th June 2021.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

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