NWH - NRW Holdings

Fifty101 said:

Great avatar by the way!

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Sorry, missed your post. Yes, fishing at Cape Range National Park (Ningaloo Reef). Beats workin'

RottenValue said:

Value is obviously far greater than market price, as always though will depend on when sentiment catches up with reality.

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Sentiment hasn't been consistently positive for quite a while. Better value elsewhere at the moment I'd say.


Cheers
Country Lad

A 6% drop today, does anyone know anything about this? I can't find any announcements.

PointBlank said:

A 6% drop today, does anyone know anything about this? I can't find any announcements.

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Negativity on the sector due to:

1. $40b of work delayed / cancelled by WPL's Browse LNG.

2. Profit downgrade by CGH.

Thanks skc!
After finishing at $1.18, NWH is at a low it hasn't seen in over two years. The contributors are a drop in gold price and and a lower than expected Chinese growth rate. Does this all warrant such a drastic plunge in prices in a matter of a few days?
NWH had an EPS of 34.7c and paid out fully franked dividends of 18c over the past year. Their half year presentation stated that they had increased revenue and profit in each of their sectors significantly, although they did lay of a significant number of staff.
Their dividend yield is currently 15.25% (0.18/1.18), assuming of course that profits and dividends hold steady. My logic is that even if dividends halve then a 7-8% dividend isn't bad either.
Obviously mining won't have a good year this year, however has the share price scaled down accordingly? In my mind it has been too excessive, although I'm just a newbie and would appreciate feedback from others. Thanks!

PointBlank said:

Thanks skc!
After finishing at $1.18, NWH is at a low it hasn't seen in over two years. The contributors are a drop in gold price and and a lower than expected Chinese growth rate. Does this all warrant such a drastic plunge in prices in a matter of a few days?
NWH had an EPS of 34.7c and paid out fully franked dividends of 18c over the past year. Their half year presentation stated that they had increased revenue and profit in each of their sectors significantly, although they did lay of a significant number of staff.
Their dividend yield is currently 15.25% (0.18/1.18), assuming of course that profits and dividends hold steady. My logic is that even if dividends halve then a 7-8% dividend isn't bad either.
Obviously mining won't have a good year this year, however has the share price scaled down accordingly? In my mind it has been too excessive, although I'm just a newbie and would appreciate feedback from others. Thanks!

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Mining services are operationally leveraged.

In boom times, they have $1b in revenue, fixed costs of $500m and variable costs of $200m (20% of revenue), they make a $300m profit.

In quieter times, revenue reduced to $750m, fixed costs stay at $500m, and variable costs of $150m (20% of revenue), they make only $100m profit.

This example shows that a 25% reduction in revenue can lead to a 2/3 reduction in profits.

Now if you take market's PE compression into account, the share price can fall even more.

Apply this kind of thinking to NWH and assess if it is truely oversold / undervalued. Don't look at it based on historical prices / yield alone.

ASL is in a trading halt... see how price reacts to their new earning guidance.

skc said:

Mining services are operationally leveraged.

In boom times, they have $1b in revenue, fixed costs of $500m and variable costs of $200m (20% of revenue), they make a $300m profit.

In quieter times, revenue reduced to $750m, fixed costs stay at $500m, and variable costs of $150m (20% of revenue), they make only $100m profit.

This example shows that a 25% reduction in revenue can lead to a 2/3 reduction in profits.

Now if you take market's PE compression into account, the share price can fall even more.

Apply this kind of thinking to NWH and assess if it is truely oversold / undervalued. Don't look at it based on historical prices / yield alone.

ASL is in a trading halt... see how price reacts to their new earning guidance.

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Thanks again skc, I'll keep doing my research!

Sorry, I've got another question. Today NWH was awarded a $67 million Roy Hill contract, yet the share price dropped 7c to $1.155. I also remember the same thing happening to Decmil when they were awarded RH work. Have shareholders reacted negatively because: 1) They believe there is risk in Roy Hill; 2) NWH was expected to secure a contract worth more? Or were there any other reasons? I realise that the whole market dropped today, but NWH had a larger than average decline as did Decmil when they were awarded RH work. Thanks again

The reason is that analysts are calling the end to the commodity super cycle, based on things like the 60 minutes story played in the US a few weeks ago and the announcement China's economy grew at a shocking annual 7.7% in the first quarter, below the expected 8 precent level and down from 7.9% in the previous quarter.(annualised)

These are the analysts that predicted the 7.9% growth in the first place and prior to that China would continue it's urbanisation push for another 20 years although may not be so full of steriods so that it can last longer!!!!!!!!
So now that these legends are declaring the end of the super cycle you should sit up and take fricken good notice because these guys know what the frick they are talken about man!

I remember Lloyd Blankfein saying wonderful things about China about 18 months ago with a kind of - if you doubt that story your another dumb muppet you unworldly limp dick without a clue what the heck is going on over there, look on his face.
Now well, IO is going to $70.
Not sure who is going to be around to sell it at that level but that's where it's going boys!! Right through the floor. I mean demand hasn't flinched but we can see where it's going from what we saw on 60 minutes!
I’ve been trying to alert people to the reality of China for decades and I mean decades!!
However, even a realist like myself, knows that the Chinese know no other way, they have to keep spending all the trillions they have made and are making to keep the people breathing the toxic air.

The Chinese will keep spending because they will have to keep spending because they will never be consumers like the states and when the Leadership runs out of money to spend and the people are no longer able to be suckered, forced, conned, blackmailed into property to line the pockets of the princelings the princelings will have take refuge in Nth Korea from the revolution which aint on the cards just yet. Especially as the Chinese Peoples Murdering army is rather efficient at mowing down protests with machine guns and then murdering the families and friends of all who had anything to do with questioning the Chinese dictatorship.

No sign of the slowing of IO imports yet. Still plenty of money in the till to keep the people eating the poisonous food & toxic pig and human soup they call water.
But the analysts know, now that US 60 minutes told them and they missed a .3 on 8% growth that the world is changing. They know, they know.
That’s why!

Hi PointBlank

Step 1 - Decide if you are a trader or an investor, and if you are a trader, read no further, it's not my game.

Step 2 - Assuming you are an investor, decide that you are going to try to put a value on the stock, and ignore the share price for now. Actually valuing the stock starts at step 3. In my case it is never a sequential thing, I probably jump at a valuation, and change it as I do my homework.

Step 3 - Nut out what you think the business is, it is often not what people think. For instance the Radio Rentals/rentlo arm of TGA does not rent new TVs and PCs - they sell them via finance leases, and where they pretend that they rent stuff like furniture, the truth is the $1 purchase price at the end of a 72-fortnight pretend operating lease is substantially a finance lease, so again, these items are substantially sold. TGA's real business is creating debt situations, and then collecting repayment streams, and the bulk of their customers are on welfare. I only mention TGA, because I know it well, and people often misunderstand it. In the same vein, the significant business that NWH is in is earthmoving - it gouges and moves ore for miners, and it does other earthworks for them - access roads, holding dams, landing strips, et cetera. It also does civil works for councils, road authorities, airport authorities and the like - substantially earthmoving with a concreting or asphalting component.

Step 4 - Think of the macro environment in which NWH operates. Iron ore is being gouged at an ever increasing rate as simple reading about BHP, RIO and FMG will confirm, and most people who have an idea of this business see this happening for many years to come, so from an iron ore tonnage perspective, the boom is still on, so the earthmovers are not in deep trouble. Royalties are paid in WA on a tonnage basis, and the WA Government's Royalties-for-Regions programme will see more civil works undertaken, which is good for NWH.

Step 5 - There will be a decline of profits, because the miners are going to negotiate harder, now that margins are slimmer, and because the exploration side of NWH's work will decline, but this is accommodated for in the Thomson Consensus Estimates that I presume all online brokers publish. I have found these to be reasonably accurate - better than what most amateurs can invent .

Step 6 - Check the debt and things like that, and again, things are not always as they seem. NWH has a mountain of cash, and it has HP commitments, but if you deduct the cash from the debt, the residual is small - 8% of equity, so this is not a risky business hounded by creditors and drowning in interest payments.

Step 7 - Now ask yourself what you are prepared to pay for the company. This will probably be something like $2.00 - it could be lower. In my case it is about $2.00.

Step 8 - If you are an investor using your own money, and you get say 14 cents dividend, or 16 cents after franking credits are added back, that would be 8% on a $2.00 SP, you could probably hold those shares for years, provided nothing looked like threatening that dividend. You cannot eliminate the risk, so you take a punt and decide if the upside (getting more than 16 cents per share is more likely than get less, and if it is, you can accept the 16 cents as reasonable. If you buy for less than $2.00, which is now the reality, things look even better.

Step 9 - You jump in and buy the shares if you cannot think of anything better wherein to invest your funds.

Step 10 - Watch the share, and provided your view of the earnings and dividend do not decline, do not worry about falling prices, other than perhaps considering buying more. If the SP rises, you might take your capital gain if you think you can do better elsewhere. As an aside, I bought in at $2.00 and doubled up yesterday, so thus far I am behind, but I expect not to remain behind for ever. I could, of course, be wrong, but the trick is to be right more often than you are wrong, loosely speaking. You can have more small failures than big successes, and still be ahead.

That is only one style of investing, there are others, as you will no doubt learn from forum members who do things differently. My experience is that if you get the fundamentals right, then in time the SP aligns to the fundamentals, but this can take a long time, and that is why I like a dividend - it helps me sit out that long time. Where I have probably failed in my investing is that I tend to hold too long, even when my perception of the business has changed, or when the SP has got toppy.

PointBlank said:

Sorry, I've got another question. Today NWH was awarded a $67 million Roy Hill contract, yet the share price dropped 7c to $1.155. I also remember the same thing happening to Decmil when they were awarded RH work. Have shareholders reacted negatively because: 1) They believe there is risk in Roy Hill; 2) NWH was expected to secure a contract worth more? Or were there any other reasons? I realise that the whole market dropped today, but NWH had a larger than average decline as did Decmil when they were awarded RH work. Thanks again

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Roy Hill contract works are subjected to the project itself getting funding which isn't necessarily a given.

Also, the forecast revenue for NWH would have included some expectation (may be a probability discounted %) of Roy Hill contracts. So while announcing a contrract win is good news, much of that may already be "factored in" so to speak.

Pioupiou said:

That is only one style of investing, there are others, as you will no doubt learn from forum members who do things differently. My experience is that if you get the fundamentals right, then in time the SP aligns to the fundamentals, but this can take a long time, and that is why I like a dividend - it helps me sit out that long time. Where I have probably failed in my investing is that I tend to hold too long, even when my perception of the business has changed, or when the SP has got toppy.

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Great post. I'd just like to add 2 points.

1. Be open to the idea that you are wrong and always look for evidence that prove you wrong. And have a plan handy for what you'd do when you are wrong.

2. Manage your risk of being wrong by not going "all-in".

skc said:

Roy Hill contract works are subjected to the project itself getting funding which isn't necessarily a given.

Also, the forecast revenue for NWH would have included some expectation (may be a probability discounted %) of Roy Hill contracts. So while announcing a contrract win is good news, much of that may already be "factored in" so to speak.

Great post. I'd just like to add 2 points.

1. Be open to the idea that you are wrong and always look for evidence that prove you wrong. And have a plan handy for what you'd do when you are wrong.

2. Manage your risk of being wrong by not going "all-in".

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Good response. Obviously, I could not in a few words encompass everything, so you added the good point of what has been factored into an SP to explain a lack of reaction to news, or a negative reaction to good news, when better news was expected. The bad news pertaining to NWH changing its EPS trajectory is, in my view, factored into the Thomson Consensus Estimates, and over factored in the current SP, which is why I bought.

Even seasoned experts make investing mistakes, so one should couch one's thinking in a framework well peppered with the concept of probability and subjectivity. Beware of people who are adamant (Google the Dunning Kruger effect). I like to articulate why I should buy a share in a written report, because the articulation itself often flushes out thinking and perception flaws, and I often expose these views to others, sometimes in this and other forums, which exposes my views to folk who may supply constructive criticism, but more importantly, my natural inclination not to look foolish forces me to be more thorough if I go public.

Your last point raises the concept of conviction levels and intellectual honesty. Where my conviction level is high, I tend to hurl reasonable money at an investment, because it then forces me to invest time in the research supporting the decision. I am not going to spend a day or more researching a stock, and refining my logic by way of a written report, if I am only going to invest $5K. But for a new investor, your advice is sound. With the benefit of hindsight, I wish I had not hurled as much at NWH as I did in April, and hurled more than I did on 18 May.

Take my views as mere grist for the mill, for were I a savvy investor I would be a multi-millionaire, which I am not. I could write a long and sad tome on my bad investing experiences, and I wish I had started earlier in the game with less money. I went in big-bang style when I was on the verge of retiring, so I know all about the University of HK (hard knocks).

NWH has been showing support at 1.14 and resistance in the 1.77 range. Stochastic Oscillator (%K(14,3): 9.3 %D(3): 5.4) and RSI (RSI(14): 30.2) are increasing according to au.stoxline website.

Thanks Pioupiou and skc, great advice all round and you've certainly given me my homework to do! I bought in at $1.41 after an initial 6% drop and I thought it may rebound as I have seen with other stocks in previous instances. Like Pioupiou I have invested in NWH with the intention of holding it, however if it did go up considerably (which I doubted it would in a short period of time) then I would have considered selling for capital gains. I think fundamental analysis of the stock itself said that it was a buy, however I underestimated the effect the market sentiment had on it.

What I'm really trying to do at the moment is establish why certain drops happen, by how much was the drop, over what period of time and how did it recover? I hope to establish a sort of library of precedents in my head (as I'm a new trader) so in the future I may be able to buy in (or sell out) at a more ideal moment. Origin for instance had an 8% drop (from memory) when it announced that APLNG was $1.7 billion over budget, I didn't buy although I thought the drop was excessive and surely enough it did bounce back up. The 0.3% difference in China's growth was obviously far more significant to the market as a whole and caused drops over a longer period of time, so in the future I'll be sure to remember this.

On the plus note, a variety of contractors and consultants have been commissioned for Roy Hill work which will start very soon! If it gets to construction phase then I'm sure we'll see upward movement from NWH.

PointBlank said:

What I'm really trying to do at the moment is establish why certain drops happen, by how much was the drop, over what period of time and how did it recover? I hope to establish a sort of library of precedents in my head (as I'm a new trader) so in the future I may be able to buy in (or sell out) at a more ideal moment.

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I think that is the realm of technical analysis.

I bought in today at 1.235 At this price the market seems to have priced NWH with an improbable level of pessimism. Time will tell.

Announcement today - followed by a 6% share price increase:

NRW HOLDINGS LIMITED (ASX: NWH) Contract Award
The NRWand Eastern Guruma Joint Venture is pleased to announce that it
has been awarded an approximate $180 million contract at
Rio Tinto’s Nammuldi Below Water Table(NBWT)

Project –
Bulk Earthworks
The Contract includes Bulk Earthworks for the processing plant, waste fine storage facility, mine
service facilities, stockyard, explosives compound, heavy vehicle haul roads, light vehicle roads,
and a rail link with a train loading facility.
Project Scope includes
(approx.)
:
•
5.7km of Heavy Haul Roads
•
12km of Ligh
t Vehicle Roads
•
Over 3,000,000 cubic metres of excavation
•
Over 690,000 cubic metres of drill and blasting
•
Over 7,000 lineal metres of culverts
The Project is expected to run for 37 weeks commencing May
2013 and at its peak, over 400 workers will be required.

tinhat said:

I think that is the realm of technical analysis.

I bought in today at 1.235 At this price the market seems to have priced NWH with an improbable level of pessimism. Time will tell.

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Timely purchase for you Tinhat, as it turns out given today's announcement. I also picked some up at $1.23 a week ago.

Fifty101 said:

Timely purchase for you Tinhat, as it turns out given today's announcement. I also picked some up at $1.23 a week ago.

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Let's hope we picked the bottom. I only bought a few and will add to my position if I think the stocks is on the move. The problem is that the stock could languish here around these levels (or go lower still) for some time yet. The good thing is the volume has dropped away since the last leg down so it appears to have found a bottom fo the time being at least.

If it doesn't recover beforehand it could be that it will get more interest as it gets closer to the next ex-div date which should be late August.

tinhat said:

Let's hope we picked the bottom. I only bought a few and will add to my position if I think the stocks is on the move. The problem is that the stock could languish here around these levels (or go lower still) for some time yet. The good thing is the volume has dropped away since the last leg down so it appears to have found a bottom fo the time being at least.

If it doesn't recover beforehand it could be that it will get more interest as it gets closer to the next ex-div date which should be late August.

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Hi Tinhat,

I suspect you are right, not a lot will happen until the next earnings guidance / Annual Report which can be expected in August. NWH sticks out like a sore thumb on my simple fundamental stock screener (admittedly so do some of the other mining services companies), so I am confident that other investors will be having a look. By my calculations NWH is worth $2.00.

Compared to the flash crash before Xmas the response has not been so immediate (admittedly other mining services companies have issued downgrades in that time) which suggests to me that Mr Market is pondering the impact of mining boom/downgrades so may take a while longer for stock to rise. Enough speculating from me and back to the street craps.

Cheers

All the theory sounds inviting, the reality is not so tempting just yet !

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Boggo said:

All the theory sounds inviting, the reality is not so tempting just yet !

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Hi Boggo,

Thanks for the chart - what would have to happen to the chart for you to be tempted?

I call this stage of the stock price cycle the "uncertainty" period.

Cheers

odds-on