Many investors seek safety with the service providers of the “hot” products or commodities of the moment.  In the face of booming commodity prices in iron ore or oil, common sense suggests investing in a company that provides services for multiple miners and oil operators provides a level of diversification that suggests less risk.  Conventional wisdom advises to diversify across business sectors to minimise risk.  In theory this should be true, but in practice mediocre or poor performing sectors will drag down returns while the admittedly riskier approach of investing in a provider can produce superior returns, if the producing sector remains hot.
Events of the last decade have shown the fatal flaw in that strategy. Regardless of how far the price of the commodity drops, the producers continue to produce while frantically scrambling to cut costs to maintain profit margins.  In short, the producers continue to mine and pump but stop expanding and exploring.   Service providers that ignored construction and engineering projects in other business sectors, piling deeper and deeper into mining and oil were crushed when the mining boom declined to saner levels as did the price of oil.
The best managed producing companies found ways to adapt to changing conditions, closing less profitable mines, and virtually abandoning expansion and exploration, eliminating drilling and crushing services, along with a host of related services from processing and engineering to camp construction.
By some measures, the fall of the providers eclipsed that of the producers.  Mining investment between 2004 and 2010 exploded from $9.7 billion to $40 billion; and then more than doubled by 2012, rising to $94 billion.  
The softening began with a 6.2% drop in Q3 of 2013, dropping $1.47 billion in that single quarter.  
The best managed service providers adapted as well, looking for opportunities in infrastructure and other construction activity.  Two of the biggest providers on the ASX – Monadelphous Group Holdings (MND) and Worley Parsons (WOR) – saw steep declines, adapted with strategic changes, and have recovered some of their losses over the last decade.

Investors who fled both the miners and their servicers in droves ignored the potential of the best of breed producers and providers to adapt as well as the cyclical nature of commodity pricing.
The following two graphs from the RBA show the depth of the mining capex (capital expenditures) decline and the recent slight rise and potential stabilization.

As mining investment activity slowly improved, the share prices of both WOR and MND improved as well, with WOR rising 200% over the last three years and MND up 136%.
While a return to the extremes of the boom days seems unlikely, UK based global specialist recruiting firm Hays says investments in new resource projects and mining expansion in Western Australia already stand at $1 billion dollars, led by LNG, iron ore, gold, and lithium spending, according to the Western Australia 2018-2019 budget.
At this point in Australia’s history the demand for mineral resources, energy, and infrastructure projects remains intact.  To minimise risk, based on analyst expectations, we sorted through multiple ASX mining and construction services providers and identified two with triple digit earnings growth forecasts, and another five with double digit forecasts.  Given the scope of the collapse in investment spending, it is not surprising none have positive historical earnings growth over five or ten years.  However, the three-year average annual rate of total shareholder return bears mentioning, as does recent price action.  Here is the table, listed by two-year earnings growth forecast, highest first.

Worley Parsons (WOR) is a broadly diversified service provider operating in 19 countries around the world.  The company has four business units.
Advisian is a consulting firm offering strategic advice and technical expertise to customers in three construction sectors – resources, energy, and infrastructure.  
The Major Projects unit specialises in delivering large scale, complex construction “strategically important projects” around the world.
The Integrated Solutions unit focuses on of greenfield assets – completely new construction projects – and brownfield assets – modification of existing or abandoned projects -assets globally, providing maintenance, modification, operations, engineering, fabrication, construction, hook-up and commissioning support services.
The Integrated Services unit partners with local communities and companies for project delivery from concept to completion and maintenance.Worley targets these specific markets – Hydrocarbons; Power; Minerals and Metals; Chemicals; and Infrastructure.
In October of 2018 the company announced the acquisition of the Energy, Chemicals and Resources division (ECR) of Jacobs Engineering Group, with a projected 20% increase in EPS (earnings per share).  Jacobs is an established services provider to the sectors served by Worley and is reportedly ranked number one in the world for its delivery of complex petrochemical and chemical projects; its maintenance, modifications and operations (“MMO”) for hydrocarbons projects, including onshore and offshore production facilities and integrated project delivery, construction and technical services. It is ranked number two for its work in the refining industry.
The deal should close in early 2019, following multiple rounds of approval processes with the countries in which both companies operate.  Worley completed a successful $2.9 billion-dollar capital raise to help finance the acquisition, shortly after the initial announcement.
The company’s Half Year 2019 Results were solid with increases in statutory revenue (9.8%) and a massive 5785% increase in statutory net profit, rising from $1.4 million to $82.4 million.  Worley has an analyst consensus rating of OUTPERFORM.
Decmil Group (DCG) serves the infrastructure, renewable energy, and natural resources sectors, with no exposure to the oil sector, a major revenue contributor to larger rival Worley Parsons.  The company operates across Australia and New Zealand.
Like Worley, Decmil provides full range project delivery services to its customers, specialising in complex projects.  The company has a heavy presence in LNG (Liquefied Natural Gas) and CSG (Coal Seam Gas) projects, providing everything from wellsite construction to gas plants to control rooms and even accommodation facilities.
In renewable energy, the company offers feasibility, engineering, project management and construction services for wind, solar, and battery storage projects. 
Decmil has multiple transport infrastructure projects underway, including bridge and road interchange work.  The company also has multiple mining infrastructure projects in progress as well as construction projects in health and educational facilities.
Decmil has been growing revenue for the past three fiscal years while reducing its posted loss.  The Half Year 2019 Results reversed the trend, posting a net profit after tax (NPAT) of $5.8 million, a dramatic improvement over the previous corresponding period (pcp) of a loss of $6.2 million.  Revenues almost doubled, rising from $140 million to $275 million.  Decmil has an analyst consensus rating at BUY.  
Of the remaining prospects in our table, NRW Holdings (NWH) has the best metrics and the most investor interest, up 44% year over year with an impressive track record of shareholder performance.  The stock also boasts an analysis consensus recommendation of BUY.
The company operates across Australia and West Africa with three revenue generating operating divisions – Civil, Mining, and Drill and Blast. NRW has turned in solid financial performance over the last three fiscal years, with revenues doubling over the period and profit nearly doubling.  Reported revenue for FY 2016 was $288 million, rising to $685 million by FY 2018.  Profit increased from $21.4 million to $42.1 million. 
The trend continued with the Half Year 2019 results with revenues rising from $345.3 million to $521.1 million and earnings before interest, taxes, depreciation, and amortisation (EBITDA) increasing from $40.3 million to $74.3 million.
The company’s Civil Contractor Division has worked on a diverse project portfolio, from bulk earthworks to airstrips to road and rail work to seawalls to bridges and tunnels to greenfield mine developments and iron ore storage. 
The NRW Mining Contractor Services include hiring, road construction and maintenance, construction of tailings storage facilities, and landscaping and rehabilitation.
In 2017 NRW expanded into civil infrastructure and urban development projects with the acquisition of Golding and in 2018 NRW added former rival RCR Tomlinson to its operations.  NRW offers drilling and blasting services as well as mining equipment manufacture and maintenance.
Orica Limited (ORI) describes itself as “the world’s largest provider of commercial explosives and innovative blasting systems to the mining, quarrying, oil and gas and construction markets, a leading supplier of sodium cyanide for gold extraction, and a specialist provider of ground support services in mining and tunneling.”Orica reported increasing revenue between FY 2017 and FY 2018, but profit fell from $386 million to a loss of $48 million, with the drop attributable to one-offs.  The company’s lack of diversification suggests greater risk than investors could find with NRW.

Imdex Limited (IMD) is another stock with a consensus analyst BUY recommendation and respectable financial performance.  Revenues have grown in each of the last three Fiscal Years with an FY 2016 loss of $56.3 million turned into a profit of $3.7 million in FY 2017 and a giant leap to $21.7 million in FY 2018.
This solid performance comes despite the company’s status as somewhat of a niche player in the sector, operating as a mining equipment, technology, and services company.  Imdex operates globally, with two business units.  AMC and REFLEX.
Both provide “high-tech” solutions to common drilling problems.  AMC optimises drilling programs, combining drilling fluids, software, and specialised technologies and equipment. 
REFLEX is a set of advanced subsurface intelligence solutions, combining specialised downhole instrumentation, analytical software, and data management, allowing for geologic modelling.  Imdex also provides expertise in data analysis and interpretation.
Downer EDI (DOW) is arguably the most diverse of any mining and construction services provider on the ASX.  To the services other diversified providers offer Downer adds facilities management through its Spotless subsidiary; design and construction of network communication systems; design and manufacture of defence systems ordnance disposal robots; operation and maintenance of a fleet of transport buses; and technology-based transport systems including CCTV, traffic signals, rail signaling, and ticketing machine installation and maintenance.
Between FY 2017 and 2018 the company’s reported revenues increased from $7.2 billion to $11.9 billion but profit dropped from $181 million to $43 million.  Half Year 2019 Results were solid as was guidance, but investors punished the stock regardless, perhaps due to the company’s decision to hang on to its underperforming mining services division.
Downer’s year over year share price performance trailed only NWH, yet both showed significant weakness in the December market downturn, suggesting mining and construction services stocks are not yet seen as a safer place for investors to be.

Maca Limited (MLD) operates primarily in Australia but also has projects in Brazil. The company offers the kind of services one would expect from a typical mining and construction services provider – mining load haul and handling, drill and blast, and crushing.  The company’s civil construction business handles roads, bridges, and earthworks along with aerodromes and drainage and marine works.  The infrastructure division works on road construction and maintenance, bridge works, safety barriers and parks and gardens.
The company is increasing revenues but reported a profit decline in its Full Year 2018 Financial Results and again in its Half Year 2019 results.  According to Reuters, analysts are maintaining an OUTPERFORM rating on the stock.  
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