Forge wins pile up

The mining services landscape is becoming increasingly polarised as a select few like Forge prosper and others fall by the wayside.

Oils aint oils. And not all mining services companies are the same.

Forge Group (FGE) again has delivered welcome news after winning an extra $50 million in asset management contracts through its newly acquired American business Taggart Global.

That follows a $100 million contract win from Rio Tinto (RIO) less than a month ago for structural, mechanical and piping works at Yandi that will contribute to earnings this year and next.  It also won an $830 million contract at Roy Hill which is conditional on the project receiving financing which in turn followed a major contract win with Fortescue (FMG).

While the size of the latest contract wins are not extraordinary, they are significant because of the diversity they contribute to Forge's earnings base.

The majority of the asset management contracts, around $38 million worth, are for ongoing maintenance works for North American coal operators with the remainder based in Australia that has seen the company enter new areas such as coal processing, utilities, power, security and closed circuit television.

Managing director David Simpson says America represents a major growth opportunity for Forge and that the contract wins will underpin earnings this year and beyond (see Brendon Lau's A mining services revival?).

The Uncapped 100 company's recent profit result came in at the bottom end of guidance and there was some disappointment on cash flow as margins were squeezed.

But Forge retains a strong balance sheet and the revenue gains from the new contracts has seen many brokers, such as Citi, Macquarie and CIMB, maintain a buy recommendation with most arguing that it looks cheap.

After peaking at $6.80 in March, Forge shares dropped below $4 in May as major resource companies began pulling the plug on expansion projects.

It rose as high as $5.03 this morning after settling back at $4.80, down 1.84% in light holiday trading.

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