NWH - NRW Holdings

[Dona Ferentes]

One of the best of the Mining services businesses IMO, yesterday's announcement a reflection of the steady hand of excellent management at the helm

The Mining Services outfits that have good management, strong balance sheets, loyal/ skilled workforces and repeat contracts have stayed the distance. But it is a cyclical sector, and dividend flow is important.

Below, the SPs for NRW (purple), LYL (red) and MND (blue) since 2007. No real need to own more than one? It would be nice to think the next few years echo post 2009

 

[galumay]

I think you are right @Dona Ferentes - one is probably enough, unless you have special knowledge! $NWH has created the most value - by virtue of how cheap it got when it was in trouble with non-payment of a major contract.

It made it a 10+ bagger for me, you dont get many opportunities like that in an investing life, needs deep conviction, buckets of luck and oodles of patience.

I have also owned MND in the past, but took my profits there.

If you can stomach the cycles, then as you say, look for a strong balance sheet, better margins and nimble management.

 

[Dona Ferentes]

I think you are right @Dona Ferentes - one is probably enough, unless you have special knowledge! $NWH has created the most value - by virtue of how cheap it got when it was in trouble with non-payment of a major contract.

It made it a 10+ bagger for me, you dont get many opportunities like that in an investing life, needs deep conviction, buckets of luck and oodles of patience.

I have also owned MND in the past, but took my profits there.

If you can stomach the cycles, then as you say, look for a strong balance sheet, better margins and nimble management.

MND is mine .... bought just as the China story was taking off ... 2005 soon after it floated. Paid $4 a share, then there was a 4 for 1 split, so I am similar to you. Notionally x10 plus healthy though fluctuating dividends along the way. So good to see management still there, and aligning with shareholders. And not bidding just for work.

I have noticed margins are a bit skinnier as the contractors moved into maintenance, and also away from the big lucrative mega projects. But a necessary move to keep the work rolling in.

 

[Dona Ferentes]

and there has been a lift in the contractors, over the last few weeks especially,.

Iron ore price holding high (Vale is not rebounding as expected) and economies recovering after Covid

MND ... dark blue
NWH ... red
LYL ..... in light blue

 

[galumay]

For some reason this sector seemed to have been missed in the froth & bubble of the last few months, most capital I allocated in that period went in that direction and the last few weeks has seen me nicely rewarded as they have started to catch up.

 

[peter2]

Since the beginning of 2021 the price of NWH has been going down. There's no sign of it pausing or slowing down at the moment. The downward momentum started after release of the NRW Half Year Results. Price gapped down in response to the news. I must admit the news didn't look to bad to me. The market showed that it had a different opinion.

I've been patiently waiting for a reversal opportunity but price has been sold down once again even though NWH reports new work contracts. Perhaps the takeover of Primero isn't going as well as instos would like.

Nothing of note on the chart currently. I'm wondering if the current lower price is near investor valuations yet?

 

[galumay]

Hey Peter, well below even my conservative valuation. Its just an unloved sector for some reason, i have owned NWH for years, still one of my best ever performing businesses. I really cant understand why its so cheap, its a great business, very well run, a series of well executed acquisitions over the years, well diversified now, heaps of contracted work in the pipeline. I would add more but I already hold a massive amount of it, still one of my biggest positions at today's price.

Its best in class in the mining services game IMO, the metrics I look at are all very strong for any business let alone one in this industry, gross margins over 58%, FCF Yield 7%, ROIIC over 11%, my range of valuation which is always conservative is over $2.

Of course it may well go down a lot further before market sentiment changes, so I have no idea whether its suitable for trading.

 

[peter2]

@galumay Thanks for your comments. I was interested in your opinion on NWH. I hadn't seen any published reason for the price decline. Clearly NWH is unloved at the moment. If the business is being managed as well as you say then other investors will notice it soon.

NWH is suitable for medium term traders like myself because in the past, when price moves, the moves are smooth (with low volatility). This makes it easy to hold while letting the revaluation swing play out.

I'll place NWH in my reversal watch list and wait for the bottom and subsequent buy setup.

 

[finicky]

Weekly chart is giving some cause for optimism. Last three candles bullish and divergence in a few indicators. Monthly chart not looking as bright and quarterly chart not showing any reversal signs yet that I can see. Seems to be getting plenty of work and the infrastructure services was expecting increased work from government's 'post' covid stimulus projects back in Feb's HY report. First Half reported 28% ebitda increase over pcp but noted decreased margin for some mineral projects due to Covid restrictions impeding transit of resources. It looks undervalued based on historical performance if you overlook one calamitous year. Overall not one I want to risk now myself due to everything generally seeming so vulnerable and because it took on $50m more debt to partially fund the Primero acquisition. I do get though that they have been paying off debt too. Also the possible chart reversal is not emphatic yet. Primero does seem good, blue ribbon clients and got the Tietto Minerals (TIE) gold mine contract. Just my notions.

3 Year Weekly

 

[galumay]

From a fundamental point of view its got very cheap, its one of the best in the sector IMO, management showed their ability a few years ago when they ran into terrible problems with a head contractor failing to pay them. The acquisitions over the years have been sensible and capital allocation has been prudent (never carry debt for long). It has very good ROIIC for a mining services business, strong FCF yield and looks pretty cheap on my calculation of range of value. I have been adding when its under $1.50.

I think it could be a FY result that disappoints some, as the effects of Covid on the business has driven costs up, so it may present a better buying opportunity in a month or so, but also the chance they surprise to the positive. So that may be something to think about for those wishing to trade it.

 

[peter2]

Didn't enter my order over night and slept in. Expensive sleep in.

Will wait for the retest of the low.

One up day isn't going the change the down trend but it's nice to see that there's some demand for this company, finally.

 

[Country Lad]

Didn't enter my order over night and slept in. Expensive sleep in.

Till after 10am? I wish I could do that.

 

[galumay]

LOL! Sorry to hear that Peter, thankfully I topped up again last week. Seems Mr Market particularly liked the news about paying down the debt with the proceeds of the sale.

 

[galumay]

I think it could be a FY result that disappoints some, as the effects of Covid on the business has driven costs up, so it may present a better buying opportunity in a month or so, but also the chance they surprise to the positive. So that may be something to think about for those wishing to trade it.

I guess I covered all outcomes with that comment! But partly correct -

 

[galumay]

Busy day for NWH! Final results released, as we knew another great year for NWH. Also a merger offer for MLD which looked very attractive but MLD management rejected it.

Anyway, should see a re rate with confirmation of excellent results and strong cash conversion.

 

[divs4ever]

Busy day for NWH! Final results released, as we knew another great year for NWH. Also a merger offer for MLD which looked very attractive but MLD management rejected it.

Anyway, should see a re rate with confirmation of excellent results and strong cash conversion.

aha !

caught a glimpse of the take-over headline ( before being distracted ) and thought it was the reverse , which seemed to me strange

i had a successful run with NWH a few years back , but since the governments are not doing enough in the infrastructure investment cycle

i didn't come back to research this for a second adventure ( i was waiting for the mining investment cycle to crater )

 

[galumay]

I dont look at macro or cycles, my crystal balls are useless. I just try to buy resilient, well managed businesses at a significant discount to value and hold for a very long time. It tends to make the fortune cookies irrelevant!

 

[divs4ever]

i take note of various cycles , but don't hold my breath waiting for them ( am more likely to pursue something currently at good value )

i bought NWH as low as 18.5 cents , i was hoping for a sub $1 opportunity to reappear ( civilian infrastructure contracts are rarely sexy in the investing world )

 

[galumay]

Yep, i bought them at about 20c, but that was nothing to do with macro or cyclicals, it was the Mitsubishi legal wrangle that drove them down so low. I think you may die of old age before they get down to $1 again! The reason its only $2 something is because mining services is not sexy! If it was running data centres or selling some crappy software on subs it would be $20.

 

[divs4ever]

Yep, i bought them at about 20c, but that was nothing to do with macro or cyclicals, it was the Mitsubishi legal wrangle that drove them down so low. I think you may die of old age before they get down to $1 again! The reason its only $2 something is because mining services is not sexy! If it was running data centres or selling some crappy software on subs it would be $20.

it won't be old age that gets me , but may NWH will find another hiccup and maybe not

i hold some rival mining services companies and they are travelling OK ( except DCG )

i don't need sexy , i need income ( rather than capital gains ) however mining services companies hit those big speed bumps ( giving you a chance to buy cheap )