Infrastructure development

Another rare direct beneficiary from the federal budget is NRW Holdings (NWH). Swan is tipping another $3 billion into infrastructure development around the country, which will be used to build new roads and rail networks.This takes total government spending to $24 billion over the forward estimates, and NRW is probably the most exposed small cap engineering contractor to this given that its civil division contributed around 60% to total revenue in the first half of 2012-13, with the balance coming from mining-related work.While it is hard to quantify the benefit for NRW at this stage, the group is in seen to be in a good position to at least secure some of the new infrastructure work given its good reputation in executing projects. This might be particularly so in its home state of Western Australia, which has been promised more than $400 million for infrastructure by the federal government.Any improvement in the outlook for infrastructure development is good news for NRW, as the industry faces a marked slowdown in mining projects due to volatile commodity prices and high domestic costs.While the budget won’t spark a positive re-rating for the stock or assuage investor fear that it is next in line to issue a shock profit warning, a lot of the bad news is currently priced into the stock after it collapsed 64% over the past year to $1.26 a share.Consensus estimates is forecasting a 29% plunge in adjusted net profit to $69.7 million from 2011-12 to 2014-15, but the current share price seems to indicate that the market is expecting its bottom line to crash by around 60% over the time period.

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