It's been a good profit season for Australia's major contracting firms, according to Macquarie, which predicts double-digit gains almost across the board.
Key themes across the sector include strong iron ore activity and renewables demand, with companies generally forecasting ongoing profit growth in the year ahead.
Macquarie also said balance sheets were in good shape, with a number of buybacks on foot, and Downer EDI Limited (ASX: DOW) announcing a new buyback.
Macquarie has upgraded Downer EDI to outperform from neutral and is predicting a total shareholder return of 14% over the next 12 months.
The analysts at Macquarie say there are a number of potential near-term catalysts for the stock, including defence estate renewals, with decisions on that expected by the end of this month, and power and transmission contract wins.
At MAAS Group Holdings (ASX: MGH), Macquarie says the outlook is improving, with growth expected in civil construction and hire, while there would also be tailwinds from residential land sales.
Macquarie is expecting 17% total shareholder returns from MAAS.
Meanwhile, Macquarie is expecting 15% returns from the $7.3 billion Worley Limited (ASX: WOR), where analysts said the growth guidance was "better than feared and (the) stock is screening well on a valuation basis, trading at double digit discount on price/earnings basis''.
Top pick in the sector
Macquarie's most bullish forecast was for a 26% total shareholder return over the next year from the $1.2 billion Service Stream Limited (ASX: SSM).
"Strategic M&A remains a focus, and outcome of Defence tender expected by end of September,'' Macquarie said.
