Surging commodity prices and a deep infrastructure pipeline support a positive medium-term outlook for contractors, a sector which has broadly lagged the market recovery. Here, we share our preferred businesses – we favour players with strong management teams, scaled business with ability to take market share as the cycle strengthens.
Better than expected vaccine news has driven a strong response from global equity markets, setting a clearer path towards a potential broad-based macroeconomic recovery scenario. Commodity prices have rallied accordingly, particularly copper – a bellwether for global growth – which is up 12 per cent over the past month to five-year highs on anticipated improving fundamentals.
Leveraged to this thematic, we still see value in a select group of mining services companies which are effectively derivatives of underlying mining activity. Despite mining activity remaining relatively robust throughout the pandemic, the mining services sector has generally lagged the broader equity market over the past year (down 11 per cent Vs Small Ordinaries up 6 per cent) and continues to trade at a meaningful discount to the market (7x FY1 EV/EBIT Vs Small Ordinaries on 19x).
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