NRW Holdings Completes Placement of $120 million To Fund Acquisition of BGC Contracting Pty Ltd

NRW Holdings Limited (ASX: NWH), a diversified provider of contract services to the resources and infrastructure sectors in Australia, recently completed a placement of $120 million wherein it received commitments to place 42.1 million new fully paid ordinary shares an issue price of $2.85 per Placement Share. The proceeds/money raised from the placement will be used by the company towards the acquisition of BGC Contracting Pty Ltd.

Before moving further, let us first understand why do companies raise capital?

Companies generally opt for capital raising when they are expanding their existing operations or acquiring new business. Sometimes small companies raise capital for general working capital requirement.

We have seen that when a company don’t have existing reserves or cash to fund an acquisition, it goes to general public to raise capital. This does not necessarily mean that if a company is raising capital, it is short of money on reserves. Some companies raise capital just keep its operations smooth. Any public company trading on a stock exchange can issue shares to have additional capital. This is a very simple way of raising capital without increasing the debt of the company.

BGC Contracting Acquisition

On 28 November 2019, NRW had announced its intention to acquire 100% of BGC Contracting for an equity value of $116.4 million.  NRW Holding is of the view that the acquisition of BGC is a strong strategic fit for the company as it adds significant scale to the company and could improve the company’s earrings.

Strong Strategic Rationale for the BGC Acquisition 

  • The acquisition delivers an enhanced platform and service offering with diversified earnings base and service provision with exposure across the entire mining lifecycle through the Mining, Construction and DIAB Engineering businesses;
  • It adds significant additional capability and service offering to support NRW’s “Mining Technologies” business, through the addition of DIAB Engineering, which provides specialist maintenance (shutdown services and onsite maintenance), industrial engineering and fabrication services;
  • The acquisition significantly enhances NRW’s revenue and earnings base with a contract order book of ~$1.5B, including ~$0.7B currently scheduled for delivery in FY20;
  • Attractive acquisition metrics expected to be highly EPS accretive: >14% pre synergies and >25% post synergies.

Settlement of the Placement is scheduled for 3 December 2019, with the Placement Shares expected to be issued on 4 December 2019 and trading to commence on the ASX the same day.

At market close on 2 December 2019, NWH was trading at a price of $3.070 with a market cap of around $1.14 billion. Notably, in the last three months, NWH stock increased by 24.69%. NWH stock is trading at a PE multiple of 34.650x with an annual dividend yield of 1.34%.

Peer Analysis 

Let us now look at few other Engineering, Construction and mining services providers operating in Australia. 

CIMIC Group Limited (ASX: CIM)

The Northwest Rapid Transit Consortium (NRT), including Pacific Partnerships and CIMIC Group companies UGL have extended its existing NRT Public Private Partnership (PPP) contract on Sydney Metro, allowing CIMIC to continue its work in delivering a world class metro rail network for the Greater Sydney region.

Under the contract, NRT will operate and maintain the full metro line from Rouse Hill to Bankstown while UGL will extend its existing services on the newly opened Metro North West Line for a period of 10 years commencing from 2024.

It is expected that these contracts will deliver revenue of around $366 million to CIMIC Group.

On a year till date basis, CIM stock has provided a negative return of 21.35%. Notably, in the last three months, the stock has increased by 9.76%. The stock is currently trading at a PE ratio of 13.910x and an annual dividend yield of 4.67%. The stock has a 52 weeks high price of $51.500 and a 52 weeks low price of $28.880 with an average volume of ~602,712. At market close on 2 December 2019, CIM stock was trading at a price of $33.530 with a market cap of around $10.89 billion. 

Worley Limited (ASX: WOR)

A leading global provider of professional project and asset services, Worley Limited (ASX: WOR) recently struck a deal with ExxonMobil Global Services to provide services to ExxonMobil’s Texas and Louisiana sites in the United States.

As per Chief Executive Officer of Worley Andrew Wood, this agreement will allow Worley to keep doing its refining and chemicals operations in the United States.

Chief Executive Officer of Worley, Andrew Wood Commented

“We are pleased that ExxonMobil has chosen to enter into this agreement that will enable them to engage our continued support for their refining and chemicals operations in the United States”

On a year till date basis, WOR stock has provided a return of 32.28%. Notably, in the last three months, the stock has increased by 21.95%. The stock is currently trading at a PE ratio of 41.210x and an annual dividend yield of 1.83%. The stock has a 52 weeks high price of 16.450 and a 52 weeks low price of 10.720 with an average volume of ~1,582,385. At market close on 2 December 2019, WOR stock was trading at a price of $14.650 with a market cap of around $7.81 billion.


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