Has Macmahon constructed a solid base?

MacMahon Holdings Limited (ASX: MAH) was a shining beacon cutting through the economic fog, as it pre-announced better than expected earnings this morning. Management now expect $1.7 billion in revenue and over $55 million in profit. First half profit is forecast to be around $20 million.

At its Annual General Meeting on November 3, Macmahon had forecast a full year profit of in excess of $45 million.  This was based on secured work in hand for 2012 of $1.4 billion and expected additional work which would take the company’s full year revenue to $1.6 billion.

We now expect further success on the work winning front which will take our full year revenue past $1.7 billion which will drive the higher profits. With a very strong order book and positive trading conditions across the Group, Macmahon is now on track to deliver a record profit for the 2012 year, Mr Bowen said.

Time to buy?
With a market cap of $400 million Macmahon has a forward price to earnings (P/E) of just 7 and price to sales of 0.24, Macmahon is likely to surge strongly on this upgrade. Some of the money flooding out of the consumer discretionary sector is likely to find its way into construction and engineering, and other less consumer dependent sectors.

Macmahon share price has formed a long base after falling off a cliff three years ago. Since falling, the business has struggling to reconstruct a solid base for growth. This upgrade and and the strong order book are good signs that the business has turned a corner.

Macmahon Holdings Limited engages in the provision of civil construction and contract mining services in Australia, New Zealand, south east Asia, and Africa. It involves in the design and construction of earthworks, road formations, pavements, bridges, tunnels and embankments, drainage, and support infrastructure; railway solutions, including overhead traction, rail laying, signalling, and communications; and quarry development and quarrying.

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