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Thursday, 14 December 2017
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Mining Services Sector

Monadelphous (MND) - Has announced a $110 million contract. This is a stock some of our clients have made good money out of. The stock has fallen from a high of 1980c to 1720c after a Director took the opportunity to sell a million shares after the AGM:

The AGM talked about margins moderating whilst revenue is expected to rise 30% in the 2nd half of the year. This is a stock that brokers don’t like. Out of the 9 brokers that cover it 7 have a sell recommendation. It is trading at a 41% premium to intrinsic value. The PE is 24.4x which is not cheap for a company with a volatile earnings profile. The yield at 4.8% (hundred percent franked) is average. It is trading 23% above the average broker target price. It is up 70% from the year low. There is nothing there that says “cheap”. Whilst the share price is having a bit of a correction in the very short term, traders will be trying to time a turn. It’s not there on the charts yet. Holders should be concerned about a break of that two-year uptrend if it happens, there is not a lot of fundamental support, or broker support, for the price.

Monadelphous (MND) chart.

Despite MND looking expensive as always I am mindful of a Chris Stott comment recently that having visited Hong Kong and having spoken to people on the ground in mainland China, he sees no hard landing for the Chinese economy which is very positive for the mining services sector. He talked about entering the next mining boom (which won’t be anything like the last one) and he continues to gain confidence in the resources recovery. On the back of that mining services is the sector that Wilson Asset Management are the most overweight. Within that sector and they like Decmil (DCG) which has recently got a contract to construct a 250 MW solar power plant in New South Wales worth $270 million starting in March next year. It’ll be 1 of Australia’s largest solar power plants. This is a chart of the earnings profile of DCG including forecasts in blue:

On top of that there are some notable Top 20 shareholders including Paradice, Thorney, Colonial First State and Dimensional. Most of whom have been buying stock:

Directors have been buying as well:

Decmil (DCG) chart. Recovering from an oversold position – RSI buy signal recently.

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