Mining production has continued uninterrupted in
-Uncertainty implied by the share price stemming from subdued construction
-Two new large iron ore haulage contracts with
-Boral stake to expand industrials and east coast infrastructure exposure
Seven Group ((SVW)) has been a beneficiary of virtually uninterrupted mining production in
The company continues to deliver but Credit Suisse believes the outlook is not reflected in the share price. Moreover, the current multiple suggests some uncertainty around the near-term outlook, which is likely stemming from the impact of subdued construction activity and event cancellations on Coates.
Yet the order book at WesTrac has the highest visibility in more than eight years, the broker argues. The heavy machinery aftermarket has continued to drive the results and there were no lumpy equipment sales to artificially boost revenue over the period.
Goldman Sachs agrees there is an attractive combination of earnings resilience and longer-term cyclical growth, reiterating a Buy rating and
More than
Coates
Coates has indicated that cancellation of events, slowing building construction and less productivity because of social distancing affected earnings. However, its biggest exposure, engineering & construction, is still strong and likely to benefit from the acceleration of infrastructure expenditure.
Coates sales were up 2% in the year to May and a successful refinancing program has provided more headroom. Stimulus from the government is also expected to provide support for "shovel ready" projects.
Goldman Sachs assesses pricing risk and competition is always a factor for Coates and margin compression in the second half of FY20 is likely. Still, the broker found the update provided more comfort on the near-term activity levels.
WesTrac
WesTrac has won two major contracts with
Goldman Sachs considers the two new contracts the most significant news item, as it means
Credit Suisse expects a combined 11% growth from the two businesses, and suspects this is conservative. At this stage, the broker includes the 10% stake in Boral ((BLD)) in the investment portfolio and factors in no dividend income from that source.
Goldman Sachs now includes the stake in estimates, although notes
FNArena's database has three Buy ratings and one Hold (
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