Monadelphous Group Limited: A diamond in the rough? 

As long as Australia has a mining industry, there will be a need for high quality contractors, and Monadelphous Group Limited (ASX:MND) will benefit.

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It is not an easy ride for any mining services company at a time when commodities across the board are tumbling to five-year lows (and those are the best performing ones!). However, when everyone fears a sector or industry, that is historically when savvy investors can make a large profit in the long run — if you can pick the winners, that is.

Is there a diamond in the rough?

There’s one company that has caught my eye for a number of reasons: Monadelphous Group Limited (ASX: MND). Once considered a ‘market darling’ by investors, it has been hit hard by the downturn in the mining industry. But have investors been too hard on Monadelphous? I think so.

Analysing cash flow over the past few years going back into the boom times, revenue has gone down. Nonetheless, considering the state of the industry, Monadelphous has fared well compared to its peers.

In 2014, Monadelphous brought in more revenue than it did during the boom times reported in 2012, though it was down from 2013. Considering the circumstances, this slight drop was a solid result. On top of that, net profit was only down about 7% on its record year of earnings in 2013. This is where you will find a margin of safety.

In 2013 Monadelphous was trading at a record $27 per share.  Since then the price has fallen to around $8.5. As an investor, I’m confident that Monadelphous is currently trading at a hefty discount and that management is addressing a tough operating environment but controlling costs effectively. That’s a recipe that should lead to a very profitable company during the next upswing (whenever that may be).

Monadelphous has worked hard to control costs and pass these savings onto clients. It has been rewarded with a very decent share of a contracting market. The management is a long-standing team that is well known in the industry. During a time of consolidation Monadelphous, is going to lose a lot of its competitors; the whole market pie will be smaller than it has been and may never return to the same levels it once was.

However, as long as Australia has a mining industry, there will be a need for high quality contractors. I’m confident that Monadelphous will be there, continuing to deliver both profit and a great service to its clients as others go under.

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Motley Fool contributor Dave Jenkins owns shares in Monadelphous Group Limited

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