On 21 st August Norfolk Updated the market on expected first...

On 21 st August Norfolk Updated the market on expected first half result.
They downgraded their NPAT from $9.3 million (same period last year) to between $4 to $6 million, but still expects the company's EBIT to exceed last years result.
Reason given; "We have witnessed a slow down in a number of contracts....

It is my understanding that this is predominately an ODG slowdown due to delays in Government Contracts.

My observations led me to the "legacy Way" Tunnel contract that was won in December last year valued at $150 million. This Tunnel is only now just begun (August - September this year). This late start will have impacted Norfolk's expected NPAT for the first half. I would hazard a guess that NFK will have expected to have booked a third of this contract into the first half result.
$150million @ 6% / 3 = $3million in delayed NPAT, plus the further negative holding costs of labour. Therefore it is not a surprise to to see Madras's comments on merging the brands and probably large labour culling.
As an investor I see this as very good news to improving the bottom line in a sustainable way.

Really what I have been looking for here is a real explanation as to how there is a $3 to $4 million reduction in NPAT. This also helps me evaluate the managements performance. All companies experience up & downgrades for legitimate reasons, but as an investor I need to be sure this is legitimate and the model has not broken down in any way. In this case if my observation is correct (and I am sure it is) then this is a normal issue all businesses face and deal with, it doesn't infer miss-management or anything untoward.
Therefore do I have an issue with the management confidence particularly in light of the overall share market performance - NO. Dont get me wrong I dont like getting hammered on the SP but I do take responsibility for my own research and decision making and if I felt the management were untrustworthy, unreliable or incapable then I would exit this stock.

To summarise;
1. I feel that I have legitimately explained $3 to $4million of the downgrade in the update on the NPAT (first haf result)

2. Full year EBIT to exceed last year marries back to the AGM update when they referred to "at least 10% "increase in full year NPAT for 2013. By exceeding last years EBIT result as updated, then his also gives strong credibility to the above calculation and reasoning.

3. Masfen was there on the 22nd Aug to pick 2.4 million shares when the SP plunged and then again a week later to pick up anther 8 million shares. As I said in an earlier post he is not an average down type of investor Masfen will only buy if there is real value (he has the track record & credibility) and he can only exit on a M&A - this is not a dividend play and he will be looking for a direct result. At risk of repeating myself Masfen is also an Aucklander (same home town as Maui Capital)
Do not underestimate the significance of this.

4.Madras thread and comments continue to increase the weight of evidence for an M&A play. Also that NFK is actively cleaning up its cost base without delay - which is great news to investors in NFK.

5.Buyers are continuing to strengthen even as the market weakens, this is also a very strong sign.