3 engineering contractors making big moves today: Find out who and why

Our embattled listed contractors are starting to catch the imagination of investors today with Ausenco Limited (ASX:AAX), Bradken Limited (ASK:BKN) and UGL Limited (ASX:UGL) making big moves.

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Listed contractors have been in the spotlight for all the wrong reasons as demand for their services has fallen off the proverbial cliff.

Thankfully, today is a little different.

The standout is Ausenco Limited (ASX: AAX) with the stock surging close to 30% to 29 cents after it kicked off the new quarter with $177 million in new contract wins and extensions from around the world.

The bounce in the stock couldn’t come soon enough as it hit fresh record lows yesterday.

While the additional revenue will be recognised over a two-year period, the amount is still significant given that Ausenco’s 2013-14 revenue was $357.2 million.

The new work includes engineering work for one of the world’s largest copper mines in Chile, detailed engineering for all leech facilities at Minera Centinela’s copper project in Chile, extension of two sustaining capital work contracts on Newcrest Mining Limited’s (ASX: NCM) Lihir Island, and the expansion of its scope of work for mining giant Vale at its Moatize coal project in Mozambique.

The news should bolster confidence on Ausenco’s future and is likely to prompt the few analysts covering the stock to upgrade their forecasts.

Another in the sector that has jumped higher is Bradken Limited (ASX: BKN). The stock is trading 4.3% higher at $1.925 in afternoon trade although there isn’t an obvious reason, particularly given that the S&P/ASX 200 Index is down 0.7% (INDEX: ^AXJO) (ASX: XJO).

Perhaps the return of takeover interest at copper-gold miner PanAust Limited (ASX: PNA) is prompting renewed interest in unsuccessful takeover targets.

PanAust’s largest shareholder Guangdong Rising Assets Management (GRAM) surprised the market by announcing an unconditional $1.71 a share takeover bid for the company after it supposedly walked away from an earlier acquisition proposal in May last year.

Bradken had also fielded interest from private equity firms in December last year when its share price was trading well over $3 a share before the bidders walked away. Like PanAust, perhaps the sharp drop in the stock since will revive corporate interest.

On the flipside, UGL Limited (ASX: UGL) isn’t having a good day after the Victorian state government decided to scrap plans for the Cranbourne to Pakenham rail corridor project.

UGL was part of the consortium that won the $2 billion plus contract under the previous Liberal state government.

The stock tumbled 4.5% to $1.39 although the consortium will be paid a “penalty fee” worth $30 million by the Andrews government for “intellectual property”, while Daniel Andrews is playing hardball when it comes to compensation to the East-West toll road consortium.

Interestingly, companies like UGL could actually make more money from penalty fees given the not-too-small risks of cost blowouts on such projects.

Pity you can’t build a business on penalty fees.

However, the Andrews government is also planning on expanding the rail project and UGL could get a second shot at winning the contract.

While there’s arguably value to be found amongst the carnage in the sector, those looking for safer growth options should consider The Motley Fool’s dividend stock ideas below.

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Motley Fool contributor Brendon Lau owns shares in Bradken. Follow me on Twitter - https://twitter.com/brenlau We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policyThis article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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