Treasure Chest: Services Providers Again In Focus

This story features RIO TINTO LIMITED, and other companies. For more info SHARE ANALYSIS: RIO

By Rudi Filapek-Vandyck

Share price of services providers to the mining and energy sectors were caught in some sort of a mini-bubble in the opening months of calendar 2012. In the absence of reliable growth elsewhere (including among miners) investors had en masse flocked to the same, narrow group of stocks and the result was pretty straightforward: surging share prices, elevated valuations, optimistic technical patterns and signals and… shares that ultimately had nowhere to go but down.

And down share prices went. It only took a few suggestions from board members at Rio Tinto ((RIO)) and BHP Billiton ((BHP)) that falling commodities prices would force them to reconsider all those billions in allocated capex and investors didn't think twice about taking profits and abandoning their previous favourites.

As I've indicated in earlier writings, there's not much intelligence behind all this and the high quality names in this segment of the Australian share market have simply become better value and thus unexpected opportunities for cool headed investors who dare to look beyond the present retreat in global risk appetite.

Observe, for example, how Monadelphous ((MND)) shares have jumped back towards $21 after sinking as low as $19 two weeks ago. In similar fashion, it would appear NRW Holdings ((NWH)) seems to be building a base around the $3.20 mark.

This morning, market strategists at Goldman Sachs added Emeco Holdings ((EHL)) to their newly established ANZ (Australia New Zealand) Conviction List with a projected upside potential of 39% for the twelve months ahead. Following on from positive broker comments and views elsewhere, Emeco shares are staging their own comeback post the sell-off. The FNArena consensus price target at $1.18 suggests there's still a gap of nearly 32% between share price and consensus target. Forecasts are for double digit increases in earnings per share, not only for this year, but including FY13 (and potentially beyond).

Market strategists at Macquarie recently updated their own conviction list (Macquarie Marquee Ideas) by retaining mining services provider RCR Tomlinson ((RCR)) and by adding Mermaid Marine ((MRM)) for its exposure to existing and scheduled LNG projects around Australia.

Last year's e-booklet "The Big De-Rating. A Guide Through The Minefields" contains a list on page 21 of 50 stocks listed on the Australian Stock Exchange with leverage to capex among miners and energy companies. Subscribers who haven't yet received their copy should send an email to info@fnarena.com

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