The NRW Holdings Limited share price is rocketing: Here’s why

NRW Holdings Limited (ASX: NWH) has seen its share price soar by 63% to 27 cents today, although the share price did hit 30 cents per share earlier.

The mining services company reported its half-year results on Friday and NRW appears to have taken several steps away from the precipice. Debt is falling and has been rescheduled, the company announced a profit, NRW is winning new contracts, asset utilisation is up and the company settled a dispute with Samsung over the Roy Hill Iron ore project.

Here are some of the major details…

  • Revenues of $150 million for the six months to end of December 2015 (1H FY16)
  • Net profit of $6.1 million – compared to a loss of $121 million for the same period last year
  • Operating cash flow of $21.6 million
  • Net debt has dropped by $27 million to $80.5 million as cash holdings increased by $3.9 million to $38.5 million. NRW still has $120 million of total debt.
  • Asset utilisation up to 80%
  • Order book increased to $780 million from $695 million at the end of June 2015, including a contract for Rio Tinto Limited (ASX: RIO) valued at $140 million and $68 million by the company’s Action Drill and Blast division
  • Dispute with Samsung settled with Samsung paying NRW $30 million
  • Overhead costs reduced by 40% compared to the same period last year
  • No dividend declared

NRW now only has to pay $42 million of its debt this financial year, rather than $70 million, thanks to a new debt schedule consisting of 33 equal monthly instalments ending in December 2018.

Oh oh, here’s the bad news

Despite the positive news, there was also some bad news. Revenues have plunged from $570.4 million in the first half of 2015 financial year (1H FY15) as projects are completed and resources clients defer, cancel or lower their capital expenditure. Drill & Blast revenues dropped from $49 million to $40 million – but are expected to improve with new contract wins.

Net profit has also been inflated thanks to previous years’ tax losses.

What next for NRW Holdings?

The company is forecasting around $144 million in revenues for the second half – roughly in line with its forecast for $300 million in revenues in FY16. NRW also expects to remain earnings and net profit positive in FY16.

Foolish takeaway

Despite the NRW share price soaring, at 26 cents, shares appear to be cheap. There’s a reason for that, though, with the market pricing in further downside risk, with mining investment falling and not expected to hit bottom until 2017 or later. As a result, NRW Holdings is a high risk, potentially high return bet with investors risking losing all or most of their capital should it go pear-shaped.

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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

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.

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