Last Thursday, the Australian Bureau of Statistics (ABS) released the September quarter report on new private capital expenditure, and the data was following the anecdotal information that equipment, plant and machinery were still negative in growth.
This was especially the case for mining-related equipment, plant and machinery, falling off 11.8%. This is what has been sending mining services companies’ share prices on their general downward path, due to less mining project expansion and exploration.
The data is also showing that capex for building and structures was leading the way with a positive 3.1% growth for the quarter. Yet within that, in contrast to the above, it was mining-related construction leading the way, climbing 3.3%. The seasonally adjusted trend estimate trend estimate had mining up 5.6% also.
Engineering and construction companies servicing the mining industry may be down in share price in general, but this is the time when investors should be looking at which are coping the best or even pulling out ahead.
Leighton Holdings (ASX: LEI) is about 5% down over the past 12 months, trending sideways since July 2012. The $5.4 billion company by market capitalisation does major mining and infrastructure projects through Leighton Contractors, John Holland and Thiess.
WorleyParsons (ASX: WOR) has exposure to mining, yet the majority of its revenue and profits in 2013 came from oil- and gas-related projects. It did just announce to that it is expecting up to around 27% less earnings for FY2014, and the market responded by sending its share price down 26% in one day to about $16.00.
Was this an overreaction? Possibly, but it does give investors an opportunity to look over the company’s long-term profitability and growth from a discounted viewpoint.
Monadelphous (ASX: MND) is down about 24% over the past year, currently at $16.50. Its 2013 results upheld its consistently increasing earnings since 2003, yet it did say that its 2014 expectations would not be as strong because of the mining pullback.
It sees growth coming from the oil and gas industry, particularly in LNG, and will be implementing cost-cutting measures in the interim.
The mining industry is coming off a high that was brought upon by China putting a lot of investment into infrastructure to keep the economy going strong during the GFC. When that was pulled back, the result flowed through to Australian mining.
It is more like returning to normal operational levels than a severe industrial bust, but still it is part of the cyclical nature of the industry. Over the next year or two, you will see gas and oil companies needing more work, so investigate which companies may be the better bargains while they are unloved by the market.
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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned.