The NRW Holdings Limited (ASX: NWH) share price continues to get hammered as investors fret that the construction group could be the next Lendlease Group (ASX: LLC).
The NWH share price fell 2.1% to a six-month low of $1.57 during lunch time trade after it crashed by 14.4% yesterday when management warned of delays to the Forrestfield-Airport Link project in Western Australia.
In contrast, the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) clawed back from morning losses of 0.6% to trade around breakeven at the time of writing.
In a deep hole
NRW is a 20% partner in a joint venture with Salini Impregilo to build the project and management confirmed it is around four-months behind schedule but this could blow out to eight months.
The current four-month delay is due to Tunnel Boring Machine (TBM) stoppages, which were directed by the client, the Public Transport Authority ("PTA").
The JV is trying to get compensation for the delay and is negotiating with the PTA.
Meanwhile, problems with Dundas Road cross passage tunnel could delay the project by another four months and the JV is looking at remediation options with the PTA. NRW noted that the state's Transport Minister Rita Saffioti has commented that she believed this is an "insurable event" – which I take to mean there's more chance for the JV to get compensated for the Dundas Road issue.
While NRW is a minority partner in the JV, history has shown that project delays can lead to significant cost blowouts.
Gloomy outlook for sector
The Lendlease share price was punished recently for delays in a small number of projects, which could see the group divest its engineering division to stop the rot from spreading to its other businesses.
Engineering groups have not had an easy time even though their pipeline of work remains very strong due to the infrastructure boom and a resurgent resources industry that is ramping up construction projects.
The Worleyparsons Limited (ASX: WOR) share price is a case in point as the stock hit a fresh 52-week low today even after it announced a new contract win in the US while Downer EDI Limited (ASX: DOW) share price is also taking a tumble despite the company winning the Parramatta Light Rail construction project.
Sentiment is also weak for earthmoving equipment groups like the Emeco Holdings Limited (ASX: EHL) share price and Seven Group Holdings Ltd (ASX: SVW) share price as worries about a global slowdown and a downbeat outlook from US giant Caterpillar Inc. is dragging on the sector.
