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The ASX 200 stock positioned better than most to the construction boom

The Seven Group Holdings Ltd (ASX: SVW) share price is under the spotlight this morning after it showed that it was well positioned to benefit from the mining and infrastructure construction boom.

The heavy equipment group revealed a 12% increase in trading revenue to $2.3 billion and a 7% uplift in underlying earnings before interest and tax to $417.6 million for the six months to end December 2019.

But don’t expect a bigger dividend payout. Management will pay a 21 cents a share fully franked interim dividend, which is the same as what it paid last year.

In a sweet spot

Not all industrial companies exposed to construction projects have been reaping the financial rewards. Downer EDI Limited (ASX: DOW), Cimic Group Ltd (ASX: CIM) and Lendlease Group (ASX: LLC) have all taken a financial hit from problem projects.

Seven Group’s advantage is that it mainly sells and rents construction equipment and supplies componentry for repairs. Project delays and cost blowouts don’t directly impact on the group.

This makes the stock a safer way to gain leverage to the ongoing ramp up in construction work in the oil and gas, mining and infrastructure sectors.

Key growth drivers

The WesTrac business was the standout as the capex drought shows signs of breaking. Companies have been putting off buying new equipment or spending on maintenance for years in an effort to cut cost but it looks like they can’t defer purchases any longer.

WesTrac enjoyed a 22% jump in new machine sales and a 12% improvement in product support revenue.

While underlying EBIT for the group’s Coates Hire equipment rental business dipped 5% compared to the same time last year, it is enjoying a rebound from a challenging 2HFY19. Management said it was “capturing opportunities in WA whilst continuing to leverage strong East Coast infrastructure demand”.

Beach Energy can cut both ways

The group’s investment in Beach Energy Ltd (ASX: BPT) also helped bolster the results as the stock jumped from $2.02 to $2.51 in the first half of FY20.

However, you may not want to on the Beach Energy share price doing an encore as the stock slumped since January. Seven Group owns a 28.6% in Beach Energy.

Outlook for 2020

Nonetheless, the growth momentum for Seven Group is tipped to roll on. Management expects full year underlying EBIT to increase in the high single digits when compared to FY19.

The growth is tipped to come from mining production, infrastructure investment, east coast gas demand and other domestic LNG export opportunities.

“We expect our WesTrac and Coates Hire businesses to be able to leverage their market leading positions to benefit from the new projects planned by major miners and the growing pipeline of government infrastructure projects,” said the group’s chief executive Ryan Stokes.

Just as well given that WesTrac and Coates Hire contributed around 70% of group EBIT.

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Motley Fool contributor Brendon Lau owns shares of Seven Group Holdings 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.