dividends, page-3

I expect the dividend to be 14 cents - that is a final dividend to be paid in October. The 11-June profit guidance indirectly supports this view, although it is silent on the specific topic of dividends.

It is worth revisiting the June profit guidance, because it does not correlate with the over-spooked attitudes of those shareholders dumping at the current SP. The announcement reads:

“11 June 2013

FY13 Guidance Update

NRW Holdings Limited (NWH) advises the market that due to delays in the award of new contracts and the slower than anticipated ramp up of these projects, group revenue is now expected to be circa $1.3 billion with a Net Profit after Tax (NPAT) in the range of $73 - $76 million.

The updated NPAT guidance range reflects a return on revenue of between 5.6% -5.8%.

Guidance provided to the market on 21st February 2013 had forecast; “Full year revenue expected to be $1.4-$1.5 billion pending timely award and commencement of contracts during the remainder of 2HFY13. Expect corresponding NPAT margin of 6%”.

The shortfall in anticipated FY2013 revenue will now flow into FY2014 as the projects referred to progressively scale up.

NRW’s current order book remains solid with $1.3 billion of work in hand and submitted tenders of
approximately $3.425 billion.”

I make the following points:

1) The announcement was made a few weeks before the 30 June EOY, so it is unlikely to vary greatly from reality.
2) The pull-back was relatively minor compared to the 29-February guidance.
3) No contract losses or scope reductions were announced, whereas the guidance overtly states that the revenue will now flow into FY2014.
4) With 278.9 million shares, the mooted profit range would give an EPS range of 26.17¢ to 27.25¢.

No dividend guidance was given, but going on precedent, and the fact that NWH is cashed up and still profitable, I would expect the dividend for the year to be 14¢. The interim dividend was 8¢, so that leaves 6¢ yet to come in October.

With little hope of expanding the business in the next two or three years, and yet NWH is expected to make profits, there is no need for NWH to retain profits to either expand the business, or cover losses that are not expected. Consequently, I see no reason to slash the dividend payout ratio. To me, it makes sense to either increase the payout ratio, or to indulge in a share purchase scheme.

On the generic business environment front, I noticed that ANZ has agreed to provide a milliard (thousand million, or a billion in new-speak English influenced by the USA) dollars bridging finance for Roy Hill, and that QANTAS has landed a three-year contract to start charter operations to the Pilbara mine site from August 13. See:

http://www.brw.com.au/p/business/anz_to_pump_bn_into_rinehart_roy_0hQK2U1HTlkvn8Rm3rBZSP

http://www.theaustralian.com.au/business/aviation/qantas-lands-3-year-roy-hill-air-services-contract/story-e6frg95x-1226683991829

This sort of news breathes life into NWH's $67 million Roy Hill contract announced in April, which was subject to satisfactory progress with Roy Hill's debt financing.