Monadelphous Group Limited versus Lend Lease Group: which is the better buy?

Engineering and mining services provider Monadelphous Group Limited (ASX: MND) reported 2016 half-year results on Tuesday. As expected, the company reported a fall in net profit after tax (NPAT) amidst a slowdown in mining. Nonetheless, its shares have surged over 15% since Monday’s closing price.

Similarly, property and infrastructure developer Lend Lease Group (ASX: LLC) reported solid half-year earnings on Wednesday, with its shares jumping almost 5% by close of trade.

Although Monadelphous has outperformed Lend Lease on percentage terms post-results, I think Lend Lease is the better buy when you take a closer look at the results and their respective industries. Here’s why.

Monadelphous’ results

Monadelphous reported NPAT of $37.6 million, down 38% on prior year (HY15). Group revenues fell 30% to $737 million with its engineering construction division – its biggest segment – posting a 43% drop in sales revenue to $415 million.

Pleasingly, Monadelphous recorded an 8% increase to sales revenue in its maintenance and industrial services division, in addition to securing new contracts (and contract extensions) totalling $1 billion across the group. The silver lining was that Monadelphous reported a strong balance sheet with net cash sitting at $182.7 million, allowing it to declare a fully-franked dividend of 28 cents per share.

Its share price responded by rising 15% since results.

Lend Lease’s results

Lend Lease reported a robust set of results with NPAT growing 12% to $354 million for the half year to 31 December 2015. Group revenues increased a massive 24.5% to $7.3 billion, largely due to record pre-sales of $5.4 billion across its residential property developments.

The group declared an unfranked dividend of 30 cents, up 11% on the prior year. Its share price responded by rising almost 5% on Wednesday.

The winner?

Although Monadelphous has outperformed Lend Lease after releasing half-year results (so far), comparing the mining services industry to the property and construction one is like comparing apples with oranges, whilst both are involved in the provision of new infrastructure, both are at opposite ends of their respective industry cycles.

The mining services industry is currently undergoing a period of transition, resulting in decreased demand for mining construction. As was evident in Monadelphous’ results, revenues in its core engineering division fell 43%, indicating the freeze on capital expenditure by mining companies is likely to continue taking a toll on mining services providers like Monadelphous. This makes investing in companies like Monadelphous fraught with danger (despite it being one of the more profitable mining services companies around).

By contrast, the property and construction industry is abuzz with increased activity. Property construction has picked up all across Australia, with Lend Lease demonstrating solid demand for its residential property developments. Construction activity is also showing signs of recovery, with Lend Lease securing $6.1 billion of new work revenue this year. Accordingly, buying into stocks leveraged to this cycle is likely to prove profitable over the long-term.

Foolish takeaway

Just because a company’s share price rises more than another over a short time frame does not automatically make it a better company to invest in. With mining services currently at a low point, investors should stay away from companies like Monadelphous and focus on quality companies like Lend Lease which are growing at rapid rates.

BRAND NEW! Our Top Dividend Stock for 2016

Our resident dividend expert names his Top Dividend Share for 2016. Not only are the shares dirt cheap, the company is trading on a 5.6% fully franked dividend yield. Simply click here to gain access to this comprehensive FREE investment report, including the name of this fast growing ASX dividend share. No credit card required!

Before investing in Lend Lease Group, ask yourself: What would YOU do if the market crashed tomorrow?

With the ASX flirting with 5,000, some experts are predicting a market crash. Discover our Foolish experts' advice on what YOU should do in the event of a crisis -- simply click here for your FREE copy of our newly updated report, "What to Do When the Sharemarket Crashes". Click here, it's FREE!.

Motley Fool contributor Rachit Dudhwala owns shares of Monadelphous Group Limited. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. 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 policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.