Picks and shovels benefiting from strong commodity prices: Macquarie’s take

Macquarie were out with a recent research note, highlighting their preferred mining services companies. There has been plenty happening in the mining sectors of late, namely: 

• Commodities prices rallying on China reopening

• Iron ore up ~50% since November

• Gold pushing above US$1900 an ounce for the first time since April

• Copper price the highest since June

• Oil prices moving higher once again – WTI crude last night hit its highest level since December last year

• Lithium prices remaining supported

All of these factors point to a healthy commodities complex, where high prices support existing project expansion and new mine development.

That’s good news for mining services contractors. Macquarie is of the same opinion, noting that “macro factors are generally supportive (resources/infra upcycle). 

Macquarie goes on to highlight Worley (ASX:WOR) and Ventia Services Group (ASX:VNT) as their preferences in the space, although also have OUTPERFORM ratings on Seven Group (ASX:SVW), Monadelphous (ASX:MND), and NRW Holdings (ASX:NWH).

Worley (ASX:WOR)

A look at Worley's one year daily chart

Macquarie forecast first-half NPATA of $162m, which would equate to 7% growth on the prior year’s $152m. This results is to be driven by revenue growth of 12%, “supported by strength in traditional & sustainability spend”. 

Whilst margins are expected to be flat this year, Macquarie expects uplift in FY24/25 as WOR benefits from operating leverage & improved pricing. 

Macquarie has an OUTPERFORM rating, with a target price of $16.21 (up from $15.96 on DCF roll-fwd). The current price is approximately $15.60. 

Ventia (ASX:VNT)

The state of Ventia's one year daily chart

Macquarie notes that VNT reaffirmed prospectus guidance at the November investor day and asserts that “VNT continues to navigate well through weather impacts and cost backdrop which reflects resilience and diversification of broader business.” 

Macquarie identifies that significant focus is on the outlook for FY23, and believes VNT should guide for growth, forecasting 11% eps growth in 23. 

Macquarie has an OUTPERFORM rating with a $3.00 target price. The current price is approximately $2.44.