Investors take dim view of cautious outlook from Monadelphous
Monadelphous clocked up a record $79.1 million net profit in the six months to December, a 37.5 per cent increase from the previous corresponding period, and revised its year-on-year revenue growth up to about 35 per cent for the 2013 financial year.
The firm reported revenue of $1.29 billion, up 46.6 per cent, and declared a fully franked interim dividend of 62¢ per share.
"The outstanding result for the latest period was due to an extraordinary surge in construction work," Monadelphous managing director, Rob Velletri, told an investor briefing.
"We saw a large number of projects ramping up and accelerating concurrently this period, which generated a greater-than-anticipated surge in construction activity."
Mr Velletri said the $1 billion secured in new contracts and contract extensions would help to give Monadelphous revenue visibility for 2013 and beyond.
However, Monadelphous shares slid by just over 6 per cent on Tuesday, closing at $26.17, with the market expressing surprise at the firm's uncertain growth outlook around approvals of new projects as mining and energy companies tighten their belts.
Mr Velletri said his company was "just being realistic about our prospects of seeing significant growth" when it flagged that the 2014 financial year would be a period of consolidation and of challenging revenue growth.
"We are still seeing growth in our contracts and we've still got significant visibility over probably a 12-month period, but beyond that ... we need to just keep winning work."
Deutsche Bank analyst Craig Wong-Pan said the cautious commentary from management was not unexpected, with its customers focused on reducing costs and reducing discretionary expenditure.
"You're seeing mining companies being cautious with what they spend and looking at their costs, and you are seeing the same thing occurring with oil and gas companies," Mr Wong-Pan said.
"This company is going to be exposed to that, so I think their cautious commentary isn't unreasonable given their market conditions."
Frequently Asked Questions about this Article…
Monadelphous reported a record net profit of $79.1 million for the six months to December, a 37.5% increase on the prior corresponding period. The firm recorded revenue of $1.29 billion (up 46.6%) and revised its year‑on‑year revenue growth to about 35% for the 2013 financial year. It also declared a fully franked interim dividend of 62¢ per share.
Management said an extraordinary surge in construction work drove the result. A large number of resources and energy projects ramped up and accelerated concurrently, producing greater‑than‑anticipated construction activity for the period.
Monadelphous secured around $1 billion in new contracts and contract extensions. Management said this provides revenue visibility for 2013 and beyond, and they currently have significant visibility over about a 12‑month period.
The company flagged that 2014 would likely be a period of consolidation with challenging revenue growth because approvals for new projects were uncertain as mining and energy clients tightened spending. Management described the caution as being realistic about the prospects for significant growth.
Shares fell just over 6% on the day of the announcement, closing at $26.17, as the market reacted to the firm's uncertain growth outlook amid signs that mining and energy companies were cutting back on discretionary expenditure.
Deutsche Bank analyst Craig Wong‑Pan said the cautious commentary wasn’t unexpected because Monadelphous’s customers—particularly mining, oil and gas companies—are focused on reducing costs and discretionary spending, which exposes the company to a tougher market.
The company did announce a fully franked interim dividend of 62¢ per share for this result. Future dividends will depend on Monadelphous’s ongoing performance, contract wins and the broader market outlook, especially given the firm’s cautious guidance for 2014.
Investors should weigh the strong recent earnings and $1 billion of new contracts against the cautious 2014 outlook and the company’s exposure to mining and energy capital‑spending cycles. Key things to watch are project approvals, contract pipelines beyond the current 12‑month visibility, and whether customers ease cost restraints.
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