MAAS Group: Building out its vertically integrated position

About the author:

Kurt Gelsomino
Author name:
By Kurt Gelsomino
Job title:
Former Analyst
Date posted:
08 March 2022, 10:00 AM
Sectors Covered:
Building Materials, Industrials, Gaming

  • MAAS Group (ASX:MGH) has expanded its residential Real Estate business into Central QLD, through the acquisition of a large, long-term development site in Rockhampton.
  • The acquisition increases the group’s development pipeline by 40%, diversifies the business into a new geography and can leverage MGH’s growing, vertically integrated position in the region.
  • Our FY24 EBITDA forecast rises 7.0% (FY22/23 unchanged). We remain attracted to MGH’s strong medium-term growth outlook and maintain our Add rating.

Rockhampton Real Estate acquisition

MGH has entered into an agreement to acquire the ‘Ellida Estate’, a large-scale residential development site in Rockhampton, QLD. The transaction is expected to be completed in Jul-22. The site has a land area of ~279ha and is the single largest residential land holding in the region.

The project is expected to deliver >2,300 lots over its 14-year development pipeline, which will increase the group’s total pipeline to ~8,100 lots across regional NSW (5,800 lots) and central QLD. The Estate will include medium density developments, a neighborhood commercial precinct and recreational parklands. Stage 1 is DA approved, detailed construction delivery planning is underway for commencement in FY23 and first settlements will occur in FY24.

The purchase price is commercially confidential, however we understand the overall cost/margins on a per lot basis will be generally consistent with the returns generated across the group’s existing Residential land bank. Consideration is comprised of an upfront payment, deferred and contingent payments and will be funded from MGH’s existing facilities.

Complements recent business expansion

The acquisition expands MGH’s Real Estate business into central QLD and will enable it to leverage the vertical integration benefits from its recently expanded Construction Materials and Civil Construction and Hire footprint.

MGH now has three large, long-term residential developments through its Dubbo Southlakes Estate (>1,800 lots), Tamworth Arcadia Estate (~1,400 lots) and Rockhampton Ellida Estate (~2,300 lots), which are supported through smaller land banks in Orange, Griffith, Lithgow, Bathurst and Mudgee.

Management highlighted the similarities of the Rockhampton market to its existing regional NSW locations, where it believes a strong pipeline of infrastructure activity and robust health, construction, manufacturing, agriculture, education and retail industries underpins a positive demand outlook for this key central QLD hub (immediate city population of ~84k and ~230k broader catchment population).

Forecast changes

Incorporating today’s acquisition has seen our FY24F residential lot settlements rise to 500 (from 425 before) on consistent EBITDA returns per lot of ~A$90k. We have also increased our estimated mix of FY24 house and land sales to 70% from 50%. This has seen our FY24 Real Estate forecast (including Commercial) rise 17.9% to A$69.2m and group EBITDA forecast rise 7.0% to A$161.0m. Our FY22/23 forecasts remain unchanged.

With MGH indicating FY24 settlements of >500 from its existing regional NSW land bank and >100 settlements from Ellida targeted (first year contribution), we have continued to factor a reasonable degree of conservatism into our FY24 settlement assumptions. Our land (A$90k per lot) and home build (A$25k per lot) EBITDA margin assumptions are also conservatively below MGH’s targets.

We note our forecasts do not include the A$11-14m (+A$2m synergies) of EBITDA from the M&A targets flagged in MGH’s recent cleansing notice, which are expected to be completed in coming weeks. On a pro forma basis, these acquisitions would see our FY23 EBITDA rise 7.8-11.4% to A$151.6-156.6m and FY24 EBITDA rise 6.8-9.9% to A$172.0-177.0m.

Investment view: maintain Add rating

While macro and geopolitical risks are weighing on investor sentiment across the broader market in the near term, MGH is continuing to do a strong job on executing its growth strategy and has laid the foundation to deliver further strong growth over FY23/24.

The delivery of FY22 guidance will reinforce the clear progress that is being made and we continue to see organic upside potential in FY23, along with the contribution of M&A nearing completion. Add rating maintained.

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