Mining services stocks are liking their 2020 prospects
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If you want to know how well the mining sector is doing, you need only ask the services sector how they are performing to get a good idea.
Excluding a couple of outliers, most services companies on Stockhead’s watchlist have performed well in the past year.
This has been supported by strong commodity prices, particularly iron ore and gold, which has driven increased mining activity.
Macmahon Holdings (ASX:MAH) certainly believes that the outlook for the resources services sector is positive and that it will continue to grow.
Managing director Mick Finnegan told Stockhead that the company was well positioned with a strong balance sheet and that it was on track to deliver its financial year 2020 guidance.
The company previously estimated that it would generate revenue of between $1.2 billion and $1.3 billion in FY20 and underlying earnings before interest and taxes of between $80m and $90m.
“The $4.7 billion order book we have in hand affords us great visibility and a strong platform to grow our business,” Finnegan said.
“Furthermore, we have a substantial pipeline of project opportunities ahead of us and are well placed to capitalise on this work.”
This is supported by WestStar Industrial (ASX:WSI), which noted that the resources sector continued to experience capital growth due to the strong demand for commodities.
Group chief executive officer Robert Spadanuda said that while activity had not returned to the levels seen in the 2008-2015 period, there was a sufficient volume of work to provide contracting organisations with growth opportunities.
“Key customers in the Pilbara such as Rio Tinto, FMG and BHP are all in the middle of major project developments,” he told Stockhead.
“Sustaining capital is also growing at pace and large customers are all deploying efficient maintenance and reliability strategies.”
Finnegan noted that following Macmahon’s acquisition of specialist underground contractor GBF Group in June last year, the company saw significant opportunity to grow its underground mining business and that this would be a key focus over the coming years.
“Overall, we are well positioned to secure more opportunities, particularly on projects where having one provider complete multiple disciplines is beneficial to our clients,” he said.
For WestStar, the sector’s strength is an opportunity to capitalise on the company’s successful transition from securing $5m-$10m contracts to being able to compete for contracts worth $20m-$50m.
Spadanuda also believes WestStar’s acquisition of Alltype Engineering allows it to credibly expand into higher levels of oil and gas work.
Both companies identified human resources as one of the key challenges in 2020.
“Accordingly, employee engagement and retention remains an ongoing focus for us and we have invested heavily in providing opportunities for our entire workforce to grow and develop professionally,” Macmahon’s Finnegan said.
WestStar also noted that access to skilled resources would present a risk to all contractors as major development work ramps up through 2020.
In the last couple of weeks, a number of services companies have secured contracts or further orders under existing contracts, which serves to further highlight the positive outlook for the sector.
In mid-December, WestStar’s engineering contractor business SIMPEC was awarded an additional $6m in extensions to its existing contracts in Western Australia.
This was followed by NRW Holdings (ASX:NWH) securing a $138m infrastructure contract from Fortescue Metals Group (ASX:FMG) to support development of 143km of rail for the Eliwana mine and rail project in the Pilbara.
Vysarn’s (ASX:VYS) wholly-owned subsidiary Pentium Hydro last week received a further purchase order worth about $1.3m to supply a second rig under its general works contract with Gina Rinehart’s Roy Hill iron ore mine.
Meanwhile, engineering company Monadelphous (ASX:MND) has secured $110m worth of construction and maintenance contracts in the resources and energy sector.