Thanks for your comments Rambo and I actually agree with you. My...

Thanks for your comments Rambo and I actually agree with you. My previous comments on likely/worst case scenarios might not have been clear. To outline my view:

1) going into the $620m contract (Sep13) my argument was that NWH's expected margin might have been ~7%; I used 7% as this was the margin for the Civil segment for FY14. The Dec13-half Civil segment margin was 9.8% so you could easily argue for a higher expected margin at the contract outset;
2) as at Dec14, the contract was ~90% completed and dispute resolution discussions were already taking place;
3) So... they had to adopt IAS11 which says they can only recognise revenue to the extent of expenses incurred on the contract, as the outcome of the dispute could not be reliably measured;
4) this puts a cap on the revenue booked, so IF there is any margin, then that portion of revenue has not yet been booked, and therefore the receivable associated with that revenue has not yet been booked (let's call this the margin revenue);
5) the wording in the half yr report was "Discussions with Samsung have been constructive but the final outcome remains uncertain hence the decision to recognise revenue only to the extent of costs incurred on the contract." I thought the inclusion of the word "only" was interesting... making it sound like there is margin revenue outstanding.

If the additional work value (dispute value) is $90m (and this would include a NWH margin of some degree, so actual expenses to NWH are lower by the margin, but let's say the margin has deteriorated to 4%: eg. $90m/1.04 = $86.5m), and NWH can recover (say) $60m... they are $26.5m in the red for the additional work. But if any outstanding margin on the original contract value is close to or greater than $26.5m, then the overall outcome for the contract looks ok (eg. it would take a margin of 4.5% on the original contract to break-even overall).

So I think we come to a similar conclusion whether the margin revenue is booked AND the receivable is booked and impaired, or my view that the margin revenue is not yet booked. There could very well be a hit to the balance sheet, and the dispute could very well go to litigation.

It's a good thing to think about worst-case scenarios, but also likely scenarios. NWH are seasoned operators and even a partial recovery of the dispute value could lead to a benign outcome for the contract overall. With this in mind, coupled with the prospect of 2 major tenders for Adani/Perth rail, I can't help thinking that shorting NWH would be riskier than being long.

Happy for any of this to be picked to pieces; in fact, hope it is. Just my view.
PoorCharlie