'Abnormal' demand driving Monadelphous

AFTER delivering its 11th consecutive year of earnings growth in 2012, engineering group Monadelphous has retained a bullish outlook for the year ahead, with first-half year sales revenue for 2013 expected to jump 40%.
'Abnormal' demand driving Monadelphous 'Abnormal' demand driving Monadelphous 'Abnormal' demand driving Monadelphous 'Abnormal' demand driving Monadelphous 'Abnormal' demand driving Monadelphous

Monadelphous managing director Rob Velletri.

Lauren Barrett

Speaking at the company’s annual general meeting, managing director Rob Velletri was looking ahead with a glass-half-full attitude.

“The outlook remains robust with respect to public sector capital expenditure,” he said.

“Maintenance expenditure in resources and energy is expected to grow over the coming five-year period, reflective of the volume of new projects moving into the operations and maintenance phase.”

The company has every reason to be bullish.

It reported a $A137 million net after-tax profit for FY2011-12, up 44.5% on the previous year after securing $2 billion in new contracts and contract extensions during the year.

Sales growth was spread out across a host of projects from the coal, iron ore and LNG sectors securing contracts in iron ore with BHP Billiton and Rio Tinto in Western Australia, and in oil and gas with Woodside and Chevron.

Over in Queensland, the company has new contracts in coal, marine works and water.

Monadelphous, which provides construction and maintenance services to the resources and construction industry, is poised for even more growth.

The company has forecast a 40% increase in revenue year-on-year for the first half of FY13 and a 25% increase in full-year revenue.

The company has secured $775 million in new contracts and contract extensions since the new financial year began.

The projection is a result of the company experiencing a rapid increase in demand as construction work on a large number of contracts ramp up.

“Following delays to some of these projects in the latter part of 2011/2012, there has been an extraordinary surge in construction activity this financial year,” Velletri said.

“The company is focused on meeting the operational and abnormal working capital demands of this intense period of activity.”

While large-scale construction demand was at record levels, cost reduction and tightening of discretionary spending was still evident.

“Margins are coming under pressure in this more competitive environment,” Velletri said.

Monadelphous was responding to this trend by paying close attention to productivity and the cost-effective delivery of its workload.

Patersons Securities analyst David Gibson said the company’s AGM update had confirmed its market leadership position.

“At a time when most resource construction contractors are expecting declining conditions Monadelphous has secured record volumes of new work,” Gibson said.

Patersons has retained its buy rating for Monadelphous and placed a $26.19 price target.