NWH is a mining service and civil contractor that has experienced a challenging period in the last few months. In late February/early March, shares were suspended for seven days while they worked through their exposure to the Whyalla Steelworks, which entered administration, and to finalise its 1H25 results. When they came back on the boards, shares traded sharply lower, closing back below $3, having been above $4 in November.
NWH confirmed that OneSteel Manufacturing owes them ~$113m for completed works, making them the second largest creditor (OneSteel operates the Whyalla Steelworks). This is not a good outcome, and while the financial difficulties were not new news to NWH, having previously negotiated security over Onesteel assets, which the company tells us puts them first amongst creditors, they missed the signs that things had turned so dire.
That said, with security in place and, of course, Anthony Albanese’s commitment to a joint government bailout worth $2.4bn for the steel business, it seems likely that NWH will get their money; it will just take a while.
- In terms of their results, 1H25 earnings came in lower than expected at $188m (vs. $196m consensus). However, they did upgrade their FY25 revenue guidance to $3.2bn-$3.3bn, up from $3.1bn, which highlights the strong visibility they have across their order book for the remainder of the year.
On 9.4x earnings that we expect to grow on average at mid-single digits over the coming three years, we have considered NWH a candidate for the Emerging Companies Portfolio as a replacement for SRG Global (SRG). SRG has enjoyed a very strong run, pushing its multiple above where we would usually be comfortable for these sorts of businesses, i.e., low margin, lots of staff, lots of complexity, and lots of project risk.
- Through time, these types of stocks trade on around 10x earnings, with the multiple pushing higher in the good times and lower in more challenging periods. As a rule of thumb, 8-12x is often the range we look for in these contracting operatives, with SRG now pushing the upper limit.
While NWH screens on the cheaper side of history, and it is a quality business, generally run by an experienced team, there has also been some management turnover, with the CFO abruptly resigning in January ahead of the issues at Whyalla. While we are generally positive on the NWH business, there are too many current uncertainties, and it would need to be cheaper to compensate for the prevailing risks.
MM is neutral NWH ~$2.80
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