As a provider of engineering services in the electrical and facilities management markets, Norfolk Group could be hit by the downturn in the building industry.
However, the company’s exposure to large infrastructure projects has helped offset the impact of decreased construction activity. Its heating, ventilation and air-conditioning (HVAC) business has struggled, but Norfolk’s success in winning important contracts relating to the provision of electrical and communications engineering has more than compensated for the shortfall.
When the company reported its interim results for the six months to September 30 last year, its order book stood at $864 million. Since then it has been awarded contracts totalling more than $280 million, including $150 million in work relating to the construction of the Legacy Way road tunnel project in Brisbane. This project is expected to be completed in late 2014 and as such will contribute revenues beyond 2011-12.
Norfolk has also been winning important work in the mining and resources sectors. In April, the company was awarded a contract worth $17.5 million by Rio Tinto to complete electrical and instrumentation engineering and installation services. Management believes this will be the forerunner to further work packages that will become available under a five-year framework agreement with Rio Tinto.
Norfolk was also awarded an $82 million contract by BHP Billiton for the design and installation of rail signalling systems at Port Hedland in Western Australia. This is a niche market in which the company’s O’Donnell Griffin business has a dominant position with strong pricing power because of the barriers to entry.
SI view: Increasing activity in the mining sector suggests Norfolk’s medium- to long-term outlook is strong. Its prominent position in essential services areas, such as transport and health, provides defensive qualities.
NFK Price at posting:
$1.13 Sentiment: Buy Disclosure: Held
