That $6bn TenderBook..., page-67

Just thinking again about how to best value NRW as contracts are awarded from here. As I mentioned some time ago, IMO the orderbook has proven to be a reasonably good (albeit rough) valuation tool historically. The company trades roughly at 0.35 x the order book after reporting season (except when it looked like the company would go under in FY15/16):



As far as it goes, to me this sort of makes sense - the worth of a cyclical company is strongly related to the locked-in work it has (assuming nothing drastic happens), in addition to it's current earnings. The contracts have become longer term, and the OB is expanding now. That should in my mind allow the PE multiplier to improve from it's fairly cheap levels to get closer to other services companies (which is the re-rating we are all waiting for).

Currently NRW is roughly at a $2.2Bn orderbook ($2Bn as at Macquarie conf in early May, and $210m Curragh Coal extension after that), which is $6 per share, getting closer to the $7.8ps peak of FY 2011. The PE got as high as 19 in 2011 when the orderbook peaked.

If NRW were to say win a $500m contract with RIO later this year we could easily justify a share price of $2.60 on this basis. However, at the moment we should be north of $2 even without that win and the market has for now decided to ignore this!

Just another way to look at it.
DYOR etc, Cheers, pb.