Company Overview: Macmahon Holdings Limited (ASX: MAH) is a diversified contractor that provides both surface and underground mining services for resources projects across a range of locations and commodity sectors. The company’s underground mining division offers a broad range of ground support services, as well as services to facilitate ventilation and access to underground mines including shaft sinking, raise drilling, and shaft lining. The company’s surface mining division offers a broad range of services including mine planning, drill and blast, bulk and selective mining, crushing and screening, water management as well as equipment operation and maintenance.

MAH Details 

Key Takeaways from FY21 Results:

• Slight Reduction in Revenue: For the year ended 30 June 2021 (FY21), the company reported total revenue of $1,351.5 million, down by 2% on the previous year, due to non-cash consideration on certain client provided consumable items at Batu Hijau.
• Rise in Underlying EBITDA: The company’s underlying EBITDA increased by 5% YoY to $249.9 million, supported by organic growth in Australia with the expansion of existing contracts and the commencement of new projects.
• Secured New Work: During FY21, the company secured $2.0 billion of new work and extensions, underpinning growth and providing a high level of secured revenue for FY22 and FY23.
• Increase in Dividend: For H2FY21, the company has declared final dividend of 0.35 cents per share, bringing the total FY21 dividend to 0.65 cents per share, which is 8% higher than the previous year. The final dividend has a record date of 8 October 2021, and a payment date of 22 October 2021.
• Increase in Statutory NPAT: Statutory NPAT for FY21 stood at $77.2 million, up 19% on the previous year, mainly due to the recognition of a $17.3 million Deferred Tax Asset.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Metrics: Gross margin for FY21 stood at 63.9%, up from 58.5% in FY20. EBITDA margin for FY21 stood at 17.6%, up from 16.5% in FY20. ROE for FY21 stood at 14.8%, up from 13.7% in FY20. Current ratio for FY21 stood at 1.24x, slightly down from 1.5x in FY20.

Profitability Metrics (Source: Analysis by Kalkine Group)

Top 10 Shareholders: The top 10 shareholders together form around 60.03% of the total shareholding, while the top four constitute the maximum holding. Amman Mineral Contractors (Singapore) Pte. Ltd. and Paradice Investment Management Pty. Ltd. are holding a maximum stake in the company at 44.27%, and 6.52%, respectively, as also highlighted in the chart below:

(Source: Analysis by Kalkine Group)

$210mn Mining Contract with CAI: On 14 September 2021, the company notified that it has finalized a mining services contract with Calidus Resources Limited (ASX: CAI) for the Warrawoona gold project in Western Australia. It is expected that this contract will generate revenue of around $210 million to MAH.

Key Risks:

• COVID-19 Uncertainties: The company is exposed to the risks associated with the COVID-19 pandemic and its associated restrictions, as it could disrupt the company’s operations. COVID-19 pandemic is also impacting the availability of skilled labour.
• Foreign Currency Risk: Due to its international operations, MAH is exposed to fluctuations in the value of the Australian dollar versus other currencies.

Outlook: As at 30 June 2021, the company had a strong order book of $5.0 billion and $7.1 billion tender pipeline, supporting the medium-term outlook of the company.  During FY21, the company commenced five new projects and is now planning to start further two new projects in early 2022. Looking ahead, the company is focused on adding scale in its underground business and expand its civil presence into Western Australia. For FY22, the company expects its revenue to be between $1.4 – $1.5 billion. Further, the company expects its EBIT (A) of $95 – $105 million. Notably, the company has already secured $1.3 billion of FY22 revenue. The company is planning to hold its next AGM on 22 October 2021.

Valuation Methodology: EV/Sales 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 one month, the stock has corrected by ~14.44% and is trading lower than the average 52-week price level band of $0.170 and $0.280, offering a decent opportunity for accumulation. The stock has been valued using EV/Sales multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight discount to its peers’ median EV/Sales multiple, considering the uncertainty surrounding the COVID-19 pandemic, risks associated with the availability of skilled labour, and increased high debt-to-equity ratio. For the purpose of valuation, peers such as MACA Ltd (ASX: MLD), Perenti Global Ltd (ASX: PRN), Monadelphous Group Ltd (ASX: MND), have been considered. Considering the decent FY21 results, solid order book, decent outlook, current trading level, valuation and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.190 as on 6 October 2021, 11:30 AM (GMT+10), Sydney, Eastern Australia.

MAH 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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