MAAS Group: Continuing to execute the game plan

About the author:

Kurt Gelsomino
Author name:
By Kurt Gelsomino
Job title:
Former Analyst
Date posted:
25 February 2022, 12:30 PM
Sectors Covered:
Building Materials, Industrials, Gaming

  • MAAS Group's (ASX:MGH) interim result was in line with guidance for EBITDA to be ~35% weighted to the 1H22. A strong liquidity position will support the continued execution of its growth initiatives.
  • With FY22 guidance (EBITDA +52-65%) reiterated, organic growth across Construction Materials and Real Estate is set to accelerate over the 2H22.
  • M&A is nearing completion, which will provide a strong foundation for the business heading into FY23 and we continue to see scope for Residential Real Estate to organically surprise to the upside over FY23/24. 
  • We remain attracted to MGH’s strong medium-term growth outlook and maintain our Add rating and (login to view) target price. 

Solid 1H22 result

MGH delivered 1H22 pro forma revenue growth of 58%, EBITDA of A$40.1m (+32%) and NPAT of A$16.6m (+6%). The results were slightly (5%) below our EBITDA forecast (A$42.0m) and 18% below our NPAT forecast (A$20.3m), with higher than expected D&A largely explained by A$1.6m of acquisition amortisation.

As expected, earnings growth was underpinned by the contribution from prior year M&A across the Civil Construction & Hire (EBITDA +23%) and Construction Materials (EBITDA +70%) segments. Overall, the result was in line with guidance of a ~35% 1H EBITDA skew.

Reported operating cashflow (outflow of A$0.8m) was impacted by an increase in general working capital (A$9.6m impact) and increase in land inventory held for resale (A$19.8m). Excluding the build in land inventory, operating cash conversion was solid at 72% and we expect solid 2H22 cash generation as its residential lots are settled.

Net debt was A$151.4m (vs. A$126.5m at Jun-21), with trailing leverage of 1.8x comfortably within its 3.5x covenant. MGH retains significant liquidity (pro forma of A$267.5m) to fund its growth initiatives and is carrying ~A$180m of property on its balance sheet across residential property (A$71m), investment property (A$101m) and equity investments (A$8m).

Focus turns to the strong 2H outlook and platform for FY23

FY22 guidance

MGH reiterated FY22 underlying EBITDA guidance of A$115-125m, +52-65%. The range implies 2H22 EBITDA of A$74.9-A$84.9m, +65%-87% yoy (2H skew of ~65-68%). As a reminder, guidance assumes an equal contribution from prior year M&A (A$20-24m EBITDA uplift) and organic growth (A$19-25m) and continues to exclude the cleansing notice acquisitions.

We understand MGH effectively has ~100% of work in hand to deliver guidance, with the timing of delivery the main 2H watch point. 

No change to key 2H drivers

  1. ~213 residential settlements (inc. 22 build to rent; 67 in 1H22) and materially stronger margins (~A$90k/lot on land only sales) due to ongoing price escalation/evolving sales mix;
  2. ramp up of delivery into Inland Rail, as well as increased concrete sales and initial precast revenue;
  3. >A$10m in Commercial Property profits (nil in 1H22; A$9.3m in FY21); and
  4. continued solid result from CC&H. Manufacturing is expected to deliver an improved result (vs. 1H22), with growth to resume in FY23. 

M&A update

The completion of the targets flagged in its cleansing notice are expected to be completed in coming weeks, with MGH announcing it had entered into an agreements to acquire a Dubbo based Plumbing and Hardware business (A$9m, inc. freehold property) and two CQ leasehold quarry operations (A$4.0m) and is also close to entering an agreement to acquire a larger CQ quarry business (A$30.0m transaction).

Upon completion, these acquisitions are still expected to deliver annualised EBITDA of A$11-14.0m (plus A$2m of synergies) and a potential 2H22 contribution (incremental to FY22 guidance) of ~A$5m was indicated.

We will continue to wait for these acquisitions to be formalised before incorporating them into our forecast. MGH is continuing to assess additional M&A opportunities to complement its core CM, CC&H and Real Estate segments.

Investment view: maintain Add rating

Our FY22 EBITDA forecast rises 1% to A$121.0m, while slightly stronger margin assumptions across Residential Real Estate has seen our FY23/24 forecasts increase 3.0%/3.0%. In FY22, our NPAT forecast has fallen 3.6% due to higher D&A, while are unchanged in FY23/24.

We remain attracted to MGH’s strong medium-term growth outlook, organic upside surprise potential in FY23/24 and strong liquidity position.

Considering these factors, we continue to see its valuation (FY22/23 PE of 20.6x/16.9x) as undemanding and maintain an Add rating.

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