NRW Holdings guides to higher earnings, stock up around 10%

NRW Holdings (ASX: NWH) was up 9.38% an hour out from the open after the large-cap Perth-based mining and construction contractor upgraded its guidance ahead of its full year FY22 results.

The market’s strong reaction today stands in stark contrast to the insipid response given to the stock, a month ago to the day, after announcing that two of its subsidiaries had bagged $878m in multiple mining contracts.

While today’s result have arguably gone some way to appeasing fears over the impact of cost and labour headwinds and increasing competition on margins, it raises question marks over how disclosure leading into a full year result is being carefully staged.

Higher than expected profits

To reflect higher-than-expected profits for the year, the company now expects FY22 earnings (EBITDA) to reach $157m for the year versus the previous guidance range of $150m to $155m.

Consistent with previous guidance the company still expects revenues to hit $2.4bn.

Other highlights within today’s announcement included:

• Cash holdings of $219.3m

• Net debt of $66.6m representing cash conversion in excess of 100% of EBITDA (of $272.4M)

The company plans to provide greater detail on today’s update when its full year FY22 result is released 18 August.

But despite the significant headwinds, CEO Jules Pemberton told investors today that the business has performed very well.

Recent developments

The group is no stranger to winning contracts, the most recent being $1.2bn awarded to subsidiary, Golding Contractors by Coronado Curragh, a subsidiary of Coronado Global Resources (CRN).

Under the extended contract, Golding will continue to provide mining and mobile plant maintenance services at the Curragh Mine in Qld.

This brings the value of NRW group work in hand to a record $5bn.

What happened at the half year?

At the half year revenue $1,160.0m and earnings (EBITDA) of $133.6m were in line with guidance, while earnings (Operating EBIT) up 26% to $74.6m at the high end of guidance.

An interim dividend was declared at 5.5 cents per share fully franked, up 37% on the previous period.

What brokers think

The stock’s share price is up 21% over one year.

Consensus on the stock is Moderate Buy.

Based on Morningstar’s fair value of $2.38 the stock appears to be undervalued.

Early July Macquarie remained cautious on NRW Holdings due to labour constraints and cost impacts on the sector at large.

While the broker retained a Neutral rating and target price of $1.80, upgrades may follow the full year FY22 result 18 August.

NRW Holdings share price over three months.