Company Overview: MACA Limited (ASX: MLD) is a diversified contracting group that provides services to the mining and construction industries. The company provides tailored solutions to suit the needs of its clients and end-users. MLD specializes in providing services related to mining, crushing, civil construction, infrastructure, and mineral processing. Under its Crushing business, the company provides complete screening services utilising the latest technology with scalping screens, vibrating and fixed screens and single, double and triple deck screens. The company was listed on ASX on 3 November 2010.

MLD Details

2021 AGM Highlights: On 18 November 2021, the company held its 2021 Annual General Meeting (AGM), wherein the management highlighted that during FY21, MLD witnessed improved performance in its underlying business operations and achieved record levels of revenue and work in hand.

• Acquisition of Mining West business: In February 2021, the company completed the acquisition of Mining West business, which significantly increased the size of its Mining division.
• Rise in Revenue: For FY21, the company reported record revenue of $1.2 billion, up 45% on the previous year, supported by the contribution from the Mining West business.
• 1QFY22 Trading Update: The company’s operational performance in Q1FY22 was in line with expectations, with material growth opportunities being targeted. MLD reported revenue of $410 million in Q1FY22.
• Decent Work in Hand Position: MLD continues to maintain a significant orderbook, with work in hand of $3.1 billion at September 2021.

Operating Cashflow Trend (Source: Analysis by Kalkine Group)

Key Metrics: Due to improved underlying business performance during FY21, the company witnessed positive recovery in its EBIT and NPAT margins. For FY21, the company reported EBIT margin of 3.4%, up from negative 2.0% in FY20. Reported Net profit margin for FY21 stood at 1.6%, up from negative 2.2% in FY20. Current ratio for FY21 stood at 1.11x, down from 1.53x in FY20. Cash cycle days for FY21 stood at 38.8 days, down from 50.9 days in FY20.

Net Profit Margin Trend (Source: Analysis by Kalkine Group)

Top 10 Shareholders: The top 10 shareholders together form around 30.30% of the total shareholding, while the top four constitute the maximum holding. Kamon (Kenneth Rudy) and Dimensional Fund Advisors, L.P. are holding a maximum stake in the company at 6.17% and 6.02%, respectively, as also highlighted in the chart below:           

                  

(Source: Analysis by Kalkine Group)

Awarded Contract at Roy Hill: On 14 December 2021, MLD informed that it has been awarded a mining services contract with Roy Hill Iron Ore Pty Ltd at the Roy Hill iron ore operation in the Pilbara. This contract is expected to generate around $70 million in revenue for MLD over the next 12 months term.

Financial Close of Mining West Acquisition: On 17 January 2021, MLD notified that it has completed the deferred payments schedule for MLD’s acquisition of Downer’s Mining West business. The acquisition of Mining West business has continued to generate returns for MLD including the recent award of a major contract to provide mining services for Roy Hill at its iron ore project in the Pilbara. The company also informed that the transaction to divest the Bluff Mine has also completed.

Key Risk:

• COVID-19 Challenges: The COVID-19 pandemic continues to present challenges for the company’s workforce with border and travel restrictions.
• Delay or Cancellation of Contracts: MLD is exposed to the risks related to the failure of obtaining contracts, delays in awards of contracts, cancellations or terminations of contracts, and delays in completion.

Outlook: MLD has a decent orderbook and a significant pipeline of pursuits, which are expected to deliver profitable growth to its business. Looking ahead, MLD is focused on pursuing both organic and inorganic growth opportunities to achieve scale and diversification. For H1FY22, the company expects its EBITDA to be in the range of $98 million to $105 million. MLD is on track to meet its FY22 revenue guidance of $1.4 billion. The company is also focused on operational productivity and other initiatives to improve and protect margins. With its robust balance sheet, the company seems well placed to pursue the right opportunities to achieve its long-term growth strategy.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)

Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: Over the last six months, the stock has corrected by ~10.52% and is currently trading lower than the average 52-week price level band of $0.645 - $1.435. The stock has been valued using an EV/EBITDA multiple based illustrative relative valuation method and arrived at a target price of a low double-digit upside (in % terms). The company can trade at a slight discount to its peers, considering the risk associated with COVID-19 pandemic and labor shortages. For the purpose of valuation, peers such as Perenti Global Ltd (ASX: PRN), Macmahon Holdings Ltd (ASX: MAH), and Emeco Holdings Ltd (ASX: EHL), have been considered.  Considering the improved work in hand position, benefits from the acquisition of Mining West Business, modest outlook, current trading level, indicative upside in valuation, and key associated risks, we give a “Speculative Buy” rating on the stock at the current market price of $0.745 as on 19 January 2022, 3:30 PM (GMT+10), Sydney, Eastern Australia.

MLD Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above. 

Technical Indicators Defined:  

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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