Listed engineering and contracting companies have been among the biggest winners from the boom in resource and infrastructure investment across Australia.
Listed engineering and contracting companies have been among the biggest winners from the boom in resource and infrastructure investment across Australia.
United Group, Monadelphous, Macmahon and RCR Tomlinson delivered strong profit growth in the 2004 financial year and enjoyed higher share prices.
Even the strugglers such as Henry Walker Eltin and Clough returned to profit in 2004.
All of these companies are expected to report higher profits in the current financial year, with Macmahon and Henry Walker Eltin particularly bullish in forecasting 40 per cent-plus profit growth.
Brokers agree on the positive earnings outlook but differ on which stocks represent good value, given the run-up in share prices that has already occurred.
Euroz analyst Steve Suleski believes the standout stocks include United, which has built a highly diversified business, Monadelphous and Macmahon.
Macquarie Financial Services’ Andrew Wackett also recommends United, which he said reported a great result for 2004.
In contrast, Patersons and Bell Potter believe United is already priced at a premium and therefore have a ‘neutral’ or ‘hold’ recommendation.
Patersons’ Rob Brierley believes Henry Walker Eltin and Macmahon represent better value.
United’s 2004 profit was its third successive year of 30 per cent-plus profit growth.
The biggest contributor was rail division United Goninan, which has benefited from the boom conditions in the iron ore sector.
Its contracts include manufacturing 700 iron ore wagons for BHP Billiton and supplying a further four locomotives for Rio Tinto.
Industrial engineering division United KG posted lower earnings, as tighter margins more than offset strong growth in revenue.
Henry Walker Eltin’s net profit of $16.9 million was described by managing director Bruce James as “our first clean full-year result”.
Its contract mining division continued to be HWE’s earnings powerhouse, while its engineering projects division posted a second successive loss as a result of “lower than critical mass activity” and below budget performance by Simon Engineering.
Clough’s net profit of $16.2 million compared with a previous loss of $9.5 million.
“This result is a step in the right direction towards delivering an acceptable level of profitability for our shareholders,” managing director David Singleton said.
The group’s profit was held back by provisions of $11 million on four problem contracts.
In contrast to other engineering and contracting companies, Clough experienced a decline in turnover and work in hand.
However, Mr Singleton said it had been provisionally awarded contracts worth $230 million, which augured well for the future.
Boom conditions in the iron ore sector were the main contributor to Monadelphous’ higher profit.
Sales revenue declined after the exceptional growth in 2003 but managing director Rob Velletri said the company achieved improved margins.
Mr Velletri said Monadelphous also achieved some success in winning long-term contracts in its maintenance and industrial services business.
Macmahon has paid its first dividend since 1998 after lifting net profit by 36 per cent and further reducing its debt.
Chief executive Nick Bowen said the 2004 year was Macmahon’s most successful for winning new work in its 40-year history.
It has benefited from strong growth in both infrastructure spending and resource sector investment.
RCR Tomlinson achieved record sales and profits in 2004. Its largest and most complex project was the installation of the 65-metre headframe for Telfer’s Newcrest mine.
Engineers
Rising 2004 profits
- United Group: Profit up 33 per cent to $29.1m; predicted 10 to 15 per cent earnings growth in 2005 financial year.
- Henry Walker Eltin: Return to profit of $16.9m; predicted earnings growth of 40 to 65 per cent in 2005.
- Clough: Return to profit of $16.2m; higher profit expected in 2005 but not specified.
- Macmahon: Profit up 36 per cent to $11.6m; profit growth of at least 40 per cent expected in 2005.
- Monadelphous: Profit up 20 per cent to $8.5m; confident of growing sales revenue in 2005.
- GRD: Profit up 11 per cent to $7.8m (excluding one-off gain from gold sale).
- RCR Tomlinson: Profit up 21 per cent to $2.5m; target profit is $3m in 2005.
