Motley Fool Australia

2 diamonds in the mining services sector?

Last week I wrote an article showcasing how the slowdown in the mining resources boom was having a dramatic negative effect on mining services companies.

Many had seen revenues and profits fall dramatically, with some forced to take impairments and quite a few reported losses. The outlook from many could be described as ‘I hope we will still be around in a years’ time’.

On the flip side, several stocks in the mining services sector are doing exceptionally well but have been marked down to cheaper prices by association.

Well, some are not wholly and solely in the mining services sector, but are lumped in with the rest of Australia’s engineering and construction companies. Here’s two stocks that may be worthy of further research.

Seymour White (ASX: SWL)

While not strictly a mining services company, Seymour White generates much of its revenue from infrastructure and civil engineering projects, such as work on roads and ports. It recently expanded into providing services for water and energy companies with its first ever acquisition.

With an estimated $35 million of cash post acquisition, forecasts of net profit between $10m-$11m and a market cap of just over $124m, Seymour White is trading on an ex-cash P/E ratio of less than 9 times, and paying a dividend yield of over 5.5%, fully franked. With a bright outlook, growing profits and cash and immaterial debt levels, you might want to add Seymour White to your watch list.

RCR Tomlinson (ASX: RCR)

RCR saw revenues rise 81% to $701.7m, and net profit up 38% to $22 million (before transaction costs). Earnings per share were up 12% as its infrastructure and resources divisions both posted growth over the previous period. The one disappointment was the energy division which saw revenues fall slightly, but only contributes 13% of the company’s total revenues.

While RCR declined to outline a monetary forecast, the company says it has plenty of potential to generate growth and lower expenses thanks to its recent acquisition of Norfolk Group.

Much of RCR’s possible upside appears to already be priced in. The company is trading on a P/E ratio of over 19 and pays a very small dividend. Possibly one to watch should prices fall dramatically.

Foolish takeaway

While the mining services sector has been hammered, and quite rightly given the performance of many stocks, the results of the above two show that there are still companies that are making money, and Seymour White in particular, appears to be flying under the radar. Other companies worthy of a closer look include MACA Limited (ASX: MLD) and WDS Limited (ASX: WDS).

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

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