A RESOURCE COMPANY THAT IS REGAINING THE MARKET'S...

A RESOURCE COMPANY THAT IS REGAINING THE MARKET'S CONFIDENCE

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OVERVIEW
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Nomad Building Solutions Ltd (ASX:NOD) has encountered tough
times in the resources industry like everybody else.
However, it hasn't come off too badly with Hartleys suggesting
the company is now a buy.
Nomad is now in the experienced hands of new managing director
Alan Thomas, who is a registered builder with 30 years of experience in
the building construction and property development industry.
It owns four property, manufacturing and building businesses
specialising in remote and regional construction and project management
across Australia.
Nomad Modular Building Pty Ltd specialises in quality modular
buildings particularly for the resources and construction industries.
It also provides ancillary services required to provide a
complete and finished solution including transport of buildings, and
installation of infrastructure services such as electrical power
generation systems, drainage and sewerage treatment systems.
Regular clients include major minerals and energy companies,
local, State and Federal Government agencies, agriculture businesses,
port authorities and private citizens.
Nomad Modular also provides ancillary services required to
provide a complete and finished solution including transport of
buildings, and installation of infrastructure services such as electrical
power generation systems, drainage and sewerage treatment systems.
McGrath Homes has a 40-year history during which it has developed
a reputation for quality transportable homes.
Brisbane-based Halley Homes is the leading manufacturer of
factory constructed housing in Queensland.
Over the past decade the company has received many building
awards that underline the reputation Halley has earned as a supplier of
quality homes including the coveted Housing Industry of Australia
National Award for Specialised Accommodation.
Rapley Wilkinson is both an award-winning builder and developer
that has been creating highly successful property developments, land
subdivisions and construction projects, for more than 30 years.
Meanwhile the Ferret has visited many of Nomad's clients, which
have used the company to construct mining camps in some of the the
roughest spots imaginable.
Among the company's clients are the big names like BHP Billiton,
Rio Tinto Hamersley Iron, Pilbara Iron Robe River, WMC, Lion Ore,
Boddington Gold Aker Kvaerner, Nickel West, Woodside, Newcrest Mining and
Fortescue Metals Group.
Hartleys is suggesting that if Nomad Building Solutions wins the
contract for Gorgan, the shares will be cheap and a speculative BUY
compared with six months ago.
The company now has a stronger operation and a new MD who is
prepared to take the necessary steps to get operations back on track.
However, its revenue visibility has not changed.
The company still requires several contract wins to fill 85 per
cent of Hartleys's FY10 revenue estimates and needs to prove to the
market that it is operating as efficiently as it should be and at
suitable margins.
However, the share price has come down substantially from the
last downgrade in October and is at half way between the 12-month price
target of 63c per share and NTA of 23c per share.
Given the FY10 P/E of 2.6x, Hartleys thinks Nomad looks cheap in
terms of risk/reward and is erring on the optimistic side.
FY10 revenue visibility is still low with Nomad currently holding
$193 million worth of work in hand and $748 million of work in tender.
As the majority of work in hand will be completed in FY09, over
90 per cent of its FY09 revenue forecast is secured.
However, FY10 visible revenue, including hire fleet income, is
only $47 million to date in Hartleys's estimate.
In addition, about $200-$250 million (27-33 per cent) of work in
tender is the tender for Gorgon.
A win or loss on this contract could cause a large swing in the
status of the order book and a significant impact on FY10 revenue
visibility.
The WA-based broking firm says its FY09 net profit estimate of
$19.7 million is slightly lower than the guidance of $21 million due to
lower margin assumptions.

SHARE PRICE MOVEMENTS
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Shares of Nomad Building yesterday crept up 0.5c to 44c. Rolling
high for the year is $1.95 with a low of 15c.
Dividend is 7.5c to yield 17.05 per cent. Earnings per share
11.8c while price/earnings ratio is 3.75. The company has 137.3 million
shares on issue with a market cap of $60.4 million.
In the current year Nomad is focusing on securing contracts at
the right margins rather than achieving volumes.
Hartleys has cut its estimates on revenue by 25 per cent to $344
million and net profit by 13 per cent to $20.2 million.
On balance, it expects net profit (normalised for the $6.9
million goodwill impairment write-down) to fall by 20 per cent in FY09
and increase modestly by 2 per cent in FY10.
Hartleys, in its review of Nomad, poses the question of what
could happen if the company misses on Gorgon.
"We believe Nomad should be able to pick up other smaller
projects to make up for the majority of that shortfall," the broker says.
"However, after running a stress test on our model, we would
prefer to see Nomad FY10 revenue to stay above $258 million."
At this revenue level, Nomad still generates adequate cash flow
to fund the ongoing operations even though the company would have to rely
on external funding to meet its debt repayment of about$13 million per
year.
Hartleys's price target is the weighted-average of four
components.
The conservative assumption is that there is a chance of each of
the following happening:
* Fundamental Valuation (DCF, 10 per cent) Assumes base case cash
flow estimates are correct and the stock trades to fundamental valuation;
* Market Put (Dividend yield, 20 per cent) Assumes the company
delivers Hartleys's earnings estimates, but the equity market falls
significantly so that dividend yield becomes the support level for the
stock;
* Earnings Disappointment (NTA, 50 per cent) Net Tangible Asset
(NTA) Value - assumes the company misses profit estimates and market is
only prepared to pay the net book value of tangible assets; and
* Positive Market Momentum (P/E multiple, 20 per cent) attempts
to captures market momentum (i.e. assumes that comparison company P/Es
converge when markets are moving).
Implicitly, Hartleys's conservative price target assumes that
there is a 50 per cent chance our base case earnings estimates occur, 50
per cent chance earnings are disappointing and zero chance of a positive
surprise.
It assumes that if base earnings estimates are met, then there is
20 per cent chance NOD trades at our DCF, 40 per cent chance it trades on
a 3.8 per cent dividend yield and 40 per cent chance it trades at P/E
comp bottom quartile multiple of 3x.

BACKGROUND
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Nomad Building Solutions was listed on the ASX on October 31,
2006.
The company is a diversified group of construction, manufacturing
and property development management businesses operating throughout
Australia.
Nomad group companies are regional and remote area specialists.
Their combined capabilities provide an unparalleled resource for property
development and commercial construction anywhere in Australia.
It is one of the few organisations with a proven track record for
innovative project development, transportable building and installation,
and award-winning insitu construction.
The company's operations cover everything from houses to
construction villages - hospitals to resorts - apartments to police
stations - land subdivisions to office blocks.