Strong Momentum Guides NRW Holdings’ Outlook

Array
(
    [0] => Array
        (
            [0] => ((NWH))
            [1] => ((NST))
            [2] => ((SMR))
            [3] => ((RIO))
        )

    [1] => Array
        (
            [0] => NWH
            [1] => NST
            [2] => SMR
            [3] => RIO
        )

)

This story features NRW HOLDINGS LIMITED, and other companies.
For more info SHARE ANALYSIS: NWH
The company is included in ASX200, ASX300 and ALL-ORDS

Diversified contractor NRW Holdings’ first half result was a solid beat of consensus, with its Minerals, Energy & Technology segment the standout.

• NRW Holdings’ earnings beat consensus by 10%
• MET segment beats by 21%
• Strong growth pipeline underpins value
• Brokers stick to Buy despite recent share price strength

By Greg Peel

NRW Holdings ((NWH)) is an Australian contractor with a workforce of around 9,000 people supporting more than 140 projects.

A leading provider of diversified contract services across the Australian resources, public infrastructure and energy sectors and urban development sectors, NRW has continued to diversify its service offering and expand its geographical presence.

In September last year, NRW acquired Fredon, an Australian leader in integrated electrical, mechanical, infrastructure, technology (EMIT) and maintenance services. In 2020, NRW acquired Primero, which provides engineering, procurement, construction, operations and maintenance solutions for the mining, energy and resources sectors.

NRW’s operations are divided into the segments of Civil, Mining, Minerals, Energy & Technology (MET) and the aforementioned EMIT.

NRW delivered a strong first half FY26 result with earnings growth of 36% to $132m representing around a 10% beat to consensus. Pleasingly, UBS suggests, the key driver of the beat was the higher multiple MET segment. Revenues from MET grew a significant 32% year on year and were 21% ahead of consensus.

This is very strong growth, UBS notes, and was supported by solid earnings margin expansion of 170 basis points to 7.7% compared with consensus of 7.0%. Overall, MET earnings of $35m marked a 33% beat of consensus.

This was a “knockout result”, says Morgans, with all operating metrics well ahead of expectations.

NRW outlined how strong 1H26 momentum is continuing with a robust order book and tender pipeline which supported an increase to full-year earnings guidance of $275-285m, up from $260-265m.

UBS highlights this is now the third organic-driven earnings guidance upgrade for FY26, underscoring how buoyant the resources and infrastructure capex-based markets are at present.

The Segments

Civil is well positioned for 2H26 and beyond, Macquarie suggests, benefitting from investments announced by Tier-1 miners, housing demands in Queensland, and infrastructure developments including defence in Western Australia and South Australia.

Civil boasts a pipeline worth $9.0bn, active tenders of $2.5bn, and an order book of $1.0bn, Macquarie notes.

Mining continues to benefit from a favourable market and weather conditions, including growing opportunities in gold, copper, and battery minerals, as well as a solid base of long-term contracts that underpin stable volumes and disciplined capital returns.

More favourable stats: pipeline $8.8bn, active tenders $4.0bn, order book $4.5bn.

MET is set to build on its strong first half performance, Macquarie notes, with notable tender activity. Pipeline $3.8bn, active tenders $1.0bn, order book $0.9bn.

EMIT (Fredon) is set for strong growth as demand accelerates across data centres, health, aged care, defence, and renewables. Pipeline $3.6bn, active tenders $1.7bn, order book $1.1bn.

Jarden sees the linkage between the MET division and customer production as the most appealing for investors within NRW’s segment mix, as production levels for customers respond to higher commodities pricing (broadening to core battery minerals and uranium) in addition to improving demand in historical commodities (lithium and nickel).

Gold exposure was also evident in the contribution from Primero, which Jarden anticipates can continue into the second half given NRW’s customer mix.

Fimiston

While the company has signalled strong growth in FY27, this may be difficult to achieve organically given the tail risk associated with Northern Star Resources’ ((NST)) Fimiston gold mine, Morgans warns.

That said, inorganically, the full year contribution from Fredon will help to supplement what should be a strong year for organic earnings growth in Mining as both Meandu (private coal mine) and Stanmore Resources’ ((SMR)) South Walker Creek coal expansion ramp up.

Although Morgans’ growth expectations fade materially in FY27, free cash flow yield is still solid at circa 6% and the company has optionality to pursue further growth options with leverage at just 0.4x.

Northern Star’s result presentation indicated that capex at Fimiston, for which Primero would make up the majority, is forecast to fall from $650m in FY26 to $130m in FY27. This creates significant tail risk for earnings in NRW’s MET division in FY27.

Although Morgans agrees the demand environment for MET is significant, it will be difficult to replace a project of this size (estimated at $450m in FY26). This broker therefore assumes MET revenue falls by -$150m year on year in FY27.

Positively, this is more than offset by higher margin Mining work with both South Walker Creek and Meandu ramping up.

FY27 also still has an incremental nine months of Fredon. Hence, so long as there’s no pain-share under the Fimiston contract for cost overruns, Morgans thinks NRW can continue to grow, though strong organic growth may be difficult to achieve.

Never Mind the Rally

NRW’s share price has risen in excess of 100% over the past twelve months. But brokers are undeterred.

Despite recent share price outperformance, the stock continues to trade at a relatively undemanding one-year forward PE multiple of 15x versus resource/industrial services peers at circa19x.

UBS views this valuation as attractive as this broker expects NRW to deliver a three-year compound annual earnings growth rate of 18% over FY25-28, underpinned by the solid level of resources/digital infrastructure capex opportunities.

The focus will, as always, remain on project execution and cash-backed earnings, UBS points out. UBS retains a Buy rating on NRW.

Macquarie agrees NRW’s valuation is attractive versus its broader peer group given its growth outlook. The strategic acquisition of Fredon is performing well and is a key driver for upside risk to consensus forecasts in FY27-28, Macquarie suggests, along with a large and growing pipeline of tenders and opportunities across its businesses.

Macquarie retains Outperform (equivalent of Buy).

With no shortage of opportunities, Citi believes NRW is well placed to continue to replenish and grow its order book. Citi notes the contractor has been able to increase its workforce by 6-7% in the last few months.

While acknowledging recruitment levels have moderated in January, Citi thinks this is a function of timing of project awards/commencements/completions, and robust capacity acquired from Fredon, further supported by the low attrition rate NRW is enjoying.

With active tender balance for NRW remaining buoyant, Citi expects recruitment levels to step up from January going forward, and sticks with Buy.

Though NRW has a large capital-intensive contract mining business, it is well diversified with its legacy civil construction business as well as its more recently formed engineering business, Morgans suggests. The company had a tumultuous year in FY25 as it faced cash collection issues and inclement weather in Queensland.

Going forward, each business enjoys significant tailwinds driven from Rio Tinto’s ((RIO)) Pilbara iron ore capex program (Civil and MET), improved weather (Mining), and potential for additional profit realisation at Northern Star’s Fimiston expansion project (MET) given the contract compensation structure.

Morgans rates NRW as Accumulate, in between Buy and Hold.

The consensus target among these four brokers monitored daily by FNArena covering NRW Holdings has jumped to $6.76 from $5.85.

Jarden also has a five-tier system, rating NRW as Overweight, which is between Buy and Neutral. Jarden’s target jumps to $6.30 from $4.90.

Moelis has increased its target to $6.90, and retains Buy.

Find out why FNArena subscribers like the service so much: “Your Feedback (Thank You)” – Warning this story contains unashamedly positive feedback on the service provided.

FNArena is proud about its track record and past achievements: Ten Years On

Click to view our Glossary of Financial Terms