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Why the Monadelphous share price is the top performer on the ASX 200 today

The Monadelphous Group Limited (ASX: MND) share price jumped this morning after the construction and engineering group posted its first half results and outlook.

The stock surged 7.3% to $17.58 in morning trade – making it the top performer on the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index. The AMP Limited (ASX: AMP) and Downer EDI Limited (ASX: DOW) share price are in second and third spots, but they both increased by less than 1% each.

Investors are excited after Monadelphous posted an increase in both interim revenue and earnings and promised even more growth for the second half.

Resources driving growth

Group revenue improved by 2.6% to $852 million while earnings before interest, tax, depreciation and amortisation (EBITDA) jumped 6.1% to $59.1 million for the six months to end December 2019.

The increase is largely driven by its maintenance and industrial services division, which posted record revenue. Sales in this segment climbed 16.2% to $584 million in the period.

Miners and energy companies are producing as much as they can and that is driving demand for Monadelphous services.

Black spots in the results

However, their engineering construction division is the weak link. Revenue dropped 17.6% to $273.4 million due to a number of project delays.

Monadelphous isn’t the only one impacted by construction projects not going to plan. Lendlease Group (ASX: LLC) and Cimic Group Ltd (ASX: CIM) have also reported similar troubles.

The group’s margins are also skinny and will likely remain under pressure. Management reported an EBITDA margin of 6.9%.

Dividend cut

The other blemish on Monadelphous results is the cut in the half-year dividend. This payout dropped to 22 cents a share, or 3 cents below what it distributed this time last year.

But the conservatism may be warranted due to the uncertain macroeconomic environment that’s exacerbated by the global coronavirus outbreak.

BHP Group Ltd (ASX: BHP) also unveiled a smaller than expected dividend as it erred on the side of caution as no one knows when the epidemic will be contained.

Better second half outlook

Unless the pathogen makes a deeper and longer impact on global growth, Monadelphous is anticipating a better second half.

“With activity levels expected to ramp up on secured resource construction projects and demand for maintenance services remaining strong, the Company is forecasting around 10 per cent revenue growth for the 2019/2020 financial year,” said the company in a statement to the ASX.

“Margins will continue to be challenged as levels of market competition remain high and customers remain price sensitive and focussed on cost containment.”

This is still a good result given the issues that have plagued its peers (I’m looking at your Downer!).

Monadelphous secured $850 million of new contracts and extensions and has a healthy balance sheet with $163.3 million in cash.

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Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited. 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 Scott Phillips.

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