Company Overview: MAAS Group Holdings Limited (ASX: MGH) has business interests in Real Estate, Civil & Construction, Equipment & Underground Services, and Construction Materials. It is engaged in property development, undertakes civil and infrastructure projects like roads, dams and is also involved in mining infrastructure works. It manufactures underground equipment and has also interest in supply of quarry materials to projects. During H1FY21, the Civil, Construction and Hire business unit contributed bulk of the revenue and generated revenue mix of ~58% of the total sales (before eliminations & adjustments), while the Real Estate vertical’s revenue contribution was at ~17%, followed by Equipment & Underground Services and Construction Materials at ~13% and ~12%, respectively.

MGH Details

Revenue Driven by Growth Across All the Segments: The Group delivered a strong performance across all the segments in H1FY21. There was increased traction of demand in the Civil, Construction and Hire segment on the back of its exposure to government and infrastructure spending on projects. The company seems to be optimistic about its growth prospects and is bullish on its Construction Materials and Real Estate business units.

Strategic Acquisitions to Aid on Growth

The company is focused on executing its growth strategy through complementary acquisitions of businesses and property assets.

• MGH added Commercial & Industrial Real Estate properties to its portfolio for a consideration of $47.2 million, with a proforma EBITDA contribution of $2.8 million.
• It has made Residential Real Estate acquisitions amounting to $31 million for 2,557 lots.
• The company has made other Strategic Business Acquisitions for a total consideration of $45.5 million, with a pro forma EBITDA contribution of $9.7 million.

Summary of H1FY21 Financial Overview:

MGH delivered decent performance during the period with improvement in most of the key metrics.

• It reported revenues of $128.6 million in H1FY21, compared to $90.3 million in the previous corresponding period.
• Statutory NPAT stood at $11.7 million, from a level of $9.5 million in the same period under consideration.
• It reported proforma liquidity of $91.8 million as of 31 December 2020 and increased its debt facilities to ~$160 million.
• The management has declared an interim dividend of 2 cents per share during the period, with a record date of 31 March 2021 and was paid on 30 April 2021.

The company has reported a reduction in its borrowings to $116.2 million as of 31 December 2020, from a level of $206.4 million as of 30 June 2020. It also reported an uptick in the cash & equivalents to $26.5 million as of H1FY21 end, against $12.5 million as of 30 June 2020.

D/E Ratio Trend (Source: Analysis by Kalkine Group)

Capital Raise to Fund Growth

MGH has recently undertaken capital raising activities in order to fund its growth and acquisition initiatives and also reduce the debt levels.

• The company has received commitments for institutional and conditional placement to the tune of ~$79 million. It has been announced that $46 million under Institutional placement have been fully underwritten as of 1 July 2021, at the issue price of $5.50 per share.
• It has also offered a Share Purchase Plan (SPP) to eligible shareholders in the ANZ region in order to raise up to $15 million at the given issue price. As per an update on 22 July 2021, the closing date of the SPP has been extended to 12 August 2021, in view of the disruptions to shareholders due to the continued lockdowns.

Top 10 Shareholders: The top 10 shareholders together form around 70.75% of the total shareholding, while the top 4 constitute the maximum holding. Maas (Wesley Jon) and Cavanagh (Thomas Paul) are holding a maximum stake in the company at 54.18% and 4.43%, respectively, as also highlighted in the chart below:

Top 10 Shareholders (Source: Analysis by Kalkine Group)

Key Metrics: Gross margin stood at 14.1% in H1FY21. There was an improvement in the liquidity of the company with the current ratio of 1.53x in H1FY21, compared to the industry median of 1.13x. The cash cycle improved to 253.8 days as of 30 June 2020, from a level of 607.4 days as of 30 June 2019.

Growth and Liquidity Profile (Source: Analysis by Kalkine Group)

Key Risks: The company is exposed to the following risk factors:

• Workplace Safety: The Group’s employees are at risk of workplace accidents and injuries.
• Contractual Risks: There is a risk that the company’s customers or suppliers may fail to fulfil its contractual obligations, thereby impacting the earnings of the Group.
• Regulatory Risks: The company’s line of business makes it prone to regulatory risks. It has to look to adhere to environmental norms for conducting business in a seamless manner.

Outlook: The company has maintained its FY21 EBITDA to be in the range of $70 - $77 million and expects the acquisitions to be earnings accretive from FY22 onwards. It anticipates pro forma EBITDA contribution to be ~$22 million from the recently announced acquisitions on 28 June and 29 April 2021. All the given points taken into consideration along with capital raise activities, puts the company in a favourable position to leverage on its exposure to growing end markets.

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

Source: 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: As per ASX, the stock of MGH is trading slightly above its average 52-weeks’ levels of $2.30-$6.32. The stock of MGH gave a positive return of ~4.22% in the past three months and a negative return of ~6.759% in the past one month. We have valued the stock using an EV/EBITDA multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight discount to its peer average EV/EBITDA (NTM trading multiple), considering the decrease in gross margin in FY20, economic volatility due to the presence of COVID-19 pandemic and prudent regulatory overview in the sector. For this purpose, we have taken peers such as CIMIC Group Ltd (ASX: CIM), Monadelphous Group Ltd (ASX: MND), Service Stream Ltd (ASX: SSM), to name a few. Considering the expected upside in valuation, impressive financial performance, capital raising to fund growth initiatives, expected synergy from acquisitions and optimistic long-term outlook, we recommend a ‘Buy’ rating on the stock at the current market price of $4.65, down by 1.06% (as on 09 August 2021, 10:27 AM (GMT+10), Sydney, Eastern Australia).

MGH Daily Technical Chart, Data Source: REFINITIV

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

Note 2: Investment decisions 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 analysis has been achieved and subject to the factors discussed above alongside support levels provided.

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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