Mining services sector booms - outlook remains strong

Lawlor said the outlook for the sector remained strong, driven by the ongoing acceleration of mineral exploration worldwide.

He said the exploration spending spree would not peak before next year, boding well for the mining services sector.

Also, the fast tracking of several large mine and infrastructure projects was helping to drive profit.

"Contract lengths are being extended and companies are experiencing record order books," he said.

Mining services companies have rushed to the market over the past 18 months, he said, with Mineral Resources Ltd, Ausenco Ltd, Sedgman Ltd, Mac Services Group, Swick Mining Services Ltd and Every Day Mine Services among eight new listings.

"Sector IPOs (initial public offerings) in the past 18 months have averaged 41 per cent price appreciation on the day of listing," Lawlor said.

"The post IPO performance is even stronger and reflects earnings growth and profit upgrades."

Stand-out performers include Ausenco, which had a $1 IPO price on June 15 and was $12.93 at 1126 AEDT on Friday, while Mineral Resources, which floated at 90 cents on July 28, was $4.89.

Bucking the trend is Industrea Ltd's shares, which nudged 80 cents in early December but were 43 cents at 1126 AEDT.

Lawlor said he expected Industrea to post a strong second half result, however, once cashflow from a recently acquired business improves the company's balance sheet.

Huddy's, a Mt Isa-based business specialising in open cut contract mining services, was acquired by Industrea last month for $250 million but much of the detail was not revealed to the market as it was commercial in confidence.

Lawlor said some of the larger fund managers had put Industrea in the sin bin due to this lack of disclosure.

He said the company would remain there until the next financial results are announced, finally revealing the fiscal impact of the Huddy's acquisition.

"I think it's going to have a very strong final quarter. It will turn out to be a great acquisition.

"At the moment, most people are assessing it as OK ... The company said it's earnings per share accretive, the debt numbers (about $123 million) don't look too bad and the profit forecast for the full year is good.

"People will sit on the sidelines until they see some actual results come through.

"The market is just not in the mood for anything other than full and frank disclosure."

He said Industrea had pursued Huddy's actively for 15 months, knowing it would provide substantial cash flow.

"Their existing sales base was lumpy.

"Huddy's will smooth things out and guarantee a baseload of earnings."

He said the deal had effectively doubled the size of Industrea, which is currently assessing two other bolt-on acquisitions that may not result in a deal.

"I would anticipate that we will see one or two acquisitions strengthening their existing business but I can't see another major one happening for a while yet.

"I would also expect a few contract wins out of WADAM, their Chinese (product) distribution business, which will put them in a strong position for a good full year result."

The 40 mining services firms on the Australian stock exchange currently have a combined market capitalisation of about $40 billion.