The engineering and construction sector still appears to be looking at a period when the mining companies won't be coming back soon with a lot of greenfield development projects. In addition, cost structures are being whittled away at to squeeze out any savings.
It's not an easy time, but for investors, it will reveal which companies have the wherewithal to change and make money. You can't predict the future, but you can see how a company's management plans to grow the business and how successful they are along the way.
These two companies are making headway and winning more work. The share prices are not overly expensive and could provide good entry points for investors.
Leighton Holdings Limited (ASX: LEI) seems to be starting on the right foot for its new financial year. The first-quarter results had a 29% increase in underlying net profit to $159 million. Revenue was up 7% to $5.7 billion.
Infrastructure development work coming in
As the mining industry is still sorting itself out after the pullback, Leighton has kept on bringing in new contracts such as infrastructure projects in Asia. In all, it has 10% more new work orders on the first quarter last year, though total work in hand stands 3% less than in fourth quarter FY2013.
Reducing receivables key to progress
It still has the issue of whittling away at its very high level of receivables that are sitting heavily on the balance sheet. If that can be handled without great amounts of write-downs, then the short-term outlook will be much better.
Maca Ltd (ASX: MLD) does contract mining, crushing and screening as well as material haulage. This is the kind of mining work that can keep going strong even if the exploration and greenfield development work falls off.
Steady income growth
Both revenue and underlying net profit in the last three years rose steadily. In its first half of FY2014 it had record results. Interim net profit was $32.6 million, up 44% on the previous corresponding period. Full year revenue guidance is for 15% more on FY2013.
Production and processing work proceeding
Some of its customers like Atlas Iron Limited (ASX: AGO) and Arrium Ltd (ASX: ARI) are increasing their iron ore production capacity, so that means more crushing and processing work for Maca.
There are still clouds on the horizon, but the market is discounting an industry in which these two companies are showing improvement. Value investors look for that inflection point when the improvements cross over and above the discounting to make a bargain.
