Ann: Half Year Accounts, page-23

From M.Star:

Analyst Note Summary
We make no change to our AUD 9.00 per share fair value estimate, and reduce our fiscal 2017 and 2018 earnings forecasts modestly to AUD 0.68 and AUD 0.69 per share, respectively. First-half fiscal 2017 NPAT fell 24% to AUD 29 million or AUD 0.30 per share, marginally weaker than expected. Group EBITDA margin fell from 8.5% to 8.0% as expected, but the 14% decline in revenue to AUD 631 million was slightly worse than anticipated. Reduction reflects lower construction activity partially offset by rising maintenance services work. None of the variances is sufficiently large to warrant a change in long-term assumptions. A slightly softer-than-anticipated AUD 0.24 dividend declined 14%, an increased 80% payout but on lower earnings.

Monadelphous' maintenance division in particular is well positioned for growth, after the company secured AUD 1.1 billion in new and extended contracts in fiscal 2016, including the Shell Australia Prelude FLNG services. Maintenance revenue and EBITDA in first-half 2017 grew 5% and 11% to AUD 340 million and AUD 24 million, respectively, ahead of expectations. However, Engineering Construction was harder hit, revenue and EBITDA down 29% and 25% to AUD 293 million and AUD 42 million, respectively.

Monadelphous' very-high fair value uncertainty reflects high dependence on resource investment. The company has no economic moat. The end of the China-driven construction boom increased customer bargaining power and a limited number of customers make up two thirds of operating revenue. Monadelphous has begun a diversification drive with an expanded presence in water and infrastructure. However, it is early days and others are naturally attempting the same. We expect the enthusiasm is overdone. At AUD 12.65, Monadelphous shares are 40% overvalued. Our forecast for only modest NPAT growth going forward could be the catalyst for price deflation.