Engineering services company Monadelphous Group Limited (ASX: MND) has announced a huge contract win from BHP Group Ltd (ASX: BHP).
What happened?
Monadelphous announced it has secured construction and maintenance contracts in the resources sector with a combined valued of approximately $120 million.
Under the Western Australian Iron Ore (WAIO) asset panel framework agreement with BHP, there are two key contracts:
There is a contract to provide structural, mechanical and electrical upgrades at the Newman Hub site in Pilbara, WA. Work will commence immediately and it’s expected to be completed before the end of 2021.
The other contract is associated with the dewatering of surplus water at the Jimblebar mine site in Newman, WA.
In addition, Monadelphous is also going to provide multi-disciplinary construction services at the Olympic Dam copper mine in SA. Monadelphous has secured its first contract under the agreement for the supply and construction of acid storage tanks and connection to the existing operating acid plant.
Finally, the company announced it has been awarded a contract to undertake a major dragline shutdown for BHP Mitsubishi Alliance at its Saraji Mine near Dysart, QLD. The work will be completed by the end of December 2020.
Summary
A total of $120 million for these contracts is a good win for the company. I’m not sure how to value engineering service businesses. They are less volatile than commodity prices (and the businesses) but they are still affected by demand for commodities over the longer-term. And how many contracts will they win in the future?
I prefer the idea of investing in consistent ASX growth shares like Pushpay Holdings Ltd (ASX: PPH). However, cyclical businesses could be worth buying at the bottom of a cycle. But this doesn’t seem like the right time.
