##{"id":59210,"date":"2011-11-24T13:07:27","date_gmt":"2011-11-24T02:07:27","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2011\/11\/24\/nrw-holdings-knocks-em-dead\/"},"modified":"2011-11-24T13:07:27","modified_gmt":"2011-11-24T02:07:27","slug":"nrw-holdings-knocks-em-dead","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2011\/11\/24\/nrw-holdings-knocks-em-dead\/","title":{"rendered":"NRW Holdings Knocks ‘Em Dead"},"content":{"rendered":"

\n\t– NRW<\/span> Holdings lifts guidance
\n\t– Increases reflect margin improvement
\n\t– Brokers lift earnings estimates and price targets<\/strong>
\n\t <\/p>\n

\n\tBy Chris Shaw<\/p>\n

\n\tCivil construction and mining services company NRW<\/span> Holdings ((NWH<\/span>)) delivered positive earnings guidance yesterday, management's expectations for the first half of FY12<\/span> and for the full year coming in ahead of market forecasts.<\/p>\n

\n\tManagement has guided to interim revenues of $580-$610 million and net profit after tax of $41-$43 million, with similar expectations for the second half of the year. This implies full year revenues of $1.16-$1.22 billion and net profit of $82-$86 million, which compares favourably<\/span> to the previous estimates of UBS of $1.15 billion and $73.1 million respectively.<\/p>\n

\n\tDriving the increase has been margin improvement, as UBS notes the new guidance implies an EBIT (earnings before interest and tax) margin of 10.8%. This is up from the 8.7% achieved in FY11<\/span> and compared to UBS's previous estimate of 10.1% for FY12<\/span>.<\/p>\n

\n\tRBS<\/span> Australia attributes the margin improvement to negotiated contract rates, Middlemount<\/span> plant mobilisation<\/span> and a ramp-up at the plant and some gains from recently negotiated contracts.<\/p>\n

\n\tThe better than expected guidance has seen increases to earnings forecasts across the market, with UBS lifting its earnings per share (EPS) numbers by 10-14% through FY14<\/span>. Deutsche Bank has been even more aggressive in increasing its net profit forecasts by 25% for FY12<\/span> and by 18% for FY13<\/span>, while the increases put through by RBS<\/span> Australia are broadly in line with those of Deutsche Bank.<\/p>\n

\n\tPost the update, the FNArena<\/span> database shows consensus EPS estimates for NRW<\/span> Holdings of 30.3c<\/span> for FY12<\/span> and 34c<\/span> for FY13<\/span>. This compares to the 16.1c<\/span> earned in FY11<\/span>.<\/p>\n

\n\tChanges to earnings estimates mean increases to price targets, RBS<\/span> lifting its target to $3.37 from $3.08, Deutsche to $3.50 from $3.10 and UBS to $4.10 from $3.75. The consensus price target for NRW<\/span> Holdings according to the database now stands at $3.66, up from $3.31 prior to the update.<\/p>\n

\n\tThere are no changes in ratings post the update, all three brokers in the database covering NRW<\/span> Holdings rating the stock as a Buy. For RBS<\/span> there remains upside potential from a strong pipeline of proposed mining capital expenditure over the next two years, which should support the group's order book.<\/p>\n

\n\tAs well, RBS<\/span> notes NRW<\/span> Holdings has a blue chip client base and a solid track record, while there is also a high level of earnings visibility with respect to near-term earnings. The current share price offers value according to RBS<\/span>, the stock trading on a FY12<\/span> earnings multiple of around 9.3 times.<\/p>\n

\n\tUBS also sees value, pointing out while the share price of NRW<\/span> Holdings has risen by 28% this year, which is outperformance<\/span> relative to the Small Ords<\/span> index of nearly 50%, EPS forecasts have been increased by 42-43%.<\/p>\n

\n\tAs UBS points out, this implies a valuation de-rating of around 10%, something the broker suggests is not justified given the solid capex<\/span> outlook for the sector and the good relationship of NRW<\/span> Holdings with key customers.<\/p>\n

\n\tIt is a similar argument from Deutsche Bank, as on its numbers NRW<\/span> Holdings is trading on a FY12<\/span> earnings multiple of just 8.8 times and for FY13<\/span> of 9.9 times.<\/p>\n

\n\tShares in NRW<\/span> Holdings today are slightly higher and as at 12.30pm<\/span> the stock was up 3c<\/span> at $2.81. This compares to a trading range over the past year of $1.66 to $3.09. The current share price implies upside of around 33% to the consensus price target in the FNArena<\/span> database.<\/p>\n

\n\t <\/p>\n

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