MAAS Group: Foundation set for a strong FY22

About the author:

Kurt Gelsomino
Author name:
By Kurt Gelsomino
Job title:
Analyst
Date posted:
27 August 2021, 9:00 AM
Sectors Covered:
Building Materials, Industrials, Gaming

  • MGH delivered a strong FY21 result, which was in line with our forecasts and at the upper end of guidance.
  • FY22 outlook commentary was positive and consistent with our expectations. We forecast the combination of recent acquisitions (A$22m EBITDA) and organic growth drivers to deliver FY22 EBITDA of A$120.0m (+58.2% yoy).
  • Stronger underlying performance and the recent residential property acquisition has seen our FY22/23/24 EBITDA forecasts increase 1.7%/3.5%/2.6%, while NPAT -2.1% in FY22 (higher net interest) and +3.5%/+2.6% in FY23/24.
  • With a strong growth outlook and M&A optionality, we continue to view MGH as attractively priced. Add rating maintained.

FY21 result in line with expectations

MGH delivered FY21 revenue growth of 25.8% and pro forma EBITDA of A$75.9m (+17.3% yoy), which was at the upper-end of guidance (A$70-77m) and in line with our forecast (A$75.0m). Despite higher net interest, a lower-than-expected effective tax rate saw NPAT of A$39.7m (+22.5% on the pcp) come in slightly ahead of us.

Strong results from the core Civil Construction & Hire business (EBITDA +17%) and Real Estate segment (EBITDA +48%) underpinned the result. Construction Materials (EBITDA -10%) posted a softer result, however an improved 2H21 outcome was delivered (EBITDA +19%).

Solid pro forma operating cashflow of A$61.7m was delivered (conversion 81%). Capex of A$56.6m exceeded our forecast (A$35m), with A$40.2m spent on growth investment targeted towards quarry land acquisitions, crushing and transport equipment, electrical hire fleet expansion and above ground plant hire fleet expansion.

Maintenance capex (A$16.4m) was largely funded through the disposal of surplus fleet (A$12.4m). Net debt (pre AASB16) was A$126.5m (1.7x leverage) or A$47.5m adjusted for committed placement funds of A$79m.

Strong growth expected in FY22

While no formal FY22 guidance was provided, outlook commentary was positive and consistent with our existing expectations. COVID restrictions have had minimal impact on the business to date.

Recently completed acquisitions are expected to contribute >A$22m in EBITDA growth (29% uplift) in FY22 and when complemented with key organic drivers, are expected to strong results across Real Estate (300 lots vs. 230 in FY21; >A$10m commercial profits); Construction Materials (>2mt quarry sales; delivery into Inland Rail started); and Civil Construction and Hire (>25% EBITDA growth).

MGH flagged total pro forma liquidity of A$170m and the capacity to raise an additional A$100m of commercial property debt to pursue further M&A. The expansion of its Construction Material and Real Estate segments remains a priority.

Forecast changes; we incorporate the recent residential property acquisition

A slightly stronger FY21 result and positive outlook commentary, has resulted in our FY22 EBITDA forecast increasing 1.7% to A$120.0m (+58.2% on FY21). However, higher net interest costs have resulted in a modest (2.1%) NPAT revision.

In FY23, we have incorporated MGH’s recent bolt-on residential property acquisition, which has seen us upgrade our residential lot settlement expectations from 350 to 400 (in line with management’s target).

This has driven 3.5%/2.6% NPAT upgrades in FY23/24.

Investment view: maintain Add rating

MGH delivered a strong FY21 result, and the completion of recent acquisitions and progression of organic growth initiatives has laid the foundation for material earnings growth (MorgansF NPAT +63.3%) to be delivered in FY22.

MGH retains further balance sheet capacity to pursue additional accretive M&A opportunities. Considering its strong growth outlook, M&A optionality, dominant position in attractive regional markets and leverage to favourable industry tailwinds, we continue to view the stock as attractively priced.

Add rating maintained.

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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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