Company Overview: Wagners Holding Company Limited (ASX: WGN) is an Australian construction materials and services provider, operating in the domestic and international markets. The company was formed in 1989 in Toowoomba, Queensland, and was listed on ASX in 2017. The company is engaged in producing cement, aggregates, concrete, new generation composite products and develops the latest technology to curb the effect of heavy construction materials on the environment.

WGN Details

WGN Rides on Decent Fundamentals & Strategic Alliances: WGN remains on track to expand into international markets like Europe, the USA, UAE, and the UK, with its Composite Fibre Technologies (CFT) products and its low carbon concrete, EFC. In addition, the company has made numerous strategic alliances to augment the growth prospects for EFC, thus aiding WGN to manufacture and distribute its technology from its local UK manufacturing facility.

Key Findings from FY21 Results:

• Rise in Revenues & NPAT: During FY21, total revenue increased by 28% on pcp and stood at ~$323.1 million, driven by precast, concrete, transport and contract crushing segments. Net profit after tax (statutory) stood at $10 million in FY21, against a loss of $17k reported in FY20.
• Achieved Higher EBITDA Growth in FY21: In FY21, EBITDA went up by $20.6 million and stood at $48.3 million, driven by higher activity across the business and higher margin work in FY21.
• Robust Results from CMS Segment: Revenues from Construction Materials and Services (CMS) increased by $72.7 million year over year. Increased construction activity in South-East Queensland, substantial growth in precast concrete activity and 44% increase in bulk haulage revenue, and a 36% rise in contract crushing revenue positively impacted the segmental revenues.
• Details of CFT and EFC Segment: Total revenues in CFT declined slightly by $2.2 million year over year, owing to lower activity in pedestrian infrastructure, due to COVID-19 delays. In Earth Friendly Concrete (EFC) low carbon technology segment, revenues went up marginally by $0.2 million, owing to higher international demand for WGN’s low carbon technologies in the UK and Europe.
• Increased Investments: In FY21, the company invested more than $2 million in its low carbon concrete technology, with an enhanced focus on R&D and invested in business development to provide growth both internationally and in Australia. The company also unveiled newly designed and manufactured poles in Australia, NZ, and the USA. In total, the company commercialised five new product lines in FY21, and further aims another five products in the research and development phase.
• Growth in Cash Receipts & Net Cash Inflows: The company recorded $359.68 million cash receipts from customers during FY21 vs $260.55 million in FY20. WGN generated $53.10 million net cash inflows from operating activities in FY21 compared to $1.14 million net cash inflows last year, owing to increased EBITDA and the decreased working capital.
• Liquidity Position: The company exited the period with a cash balance of $22.24 million, compared to $3.44 million reported at the end of FY20. Net debt at the end of FY21 reduced by $34.2 million, owing to improved operational cashflow and business performance.

Key Operational & Financial Trends; Analysis by Kalkine Group

Key Metrics: For FY21, the company reported an EBITDA margin of 12.2%, higher than the year-ago figure of 10.7%. In FY21, the company recorded ROE of 11.6% compared to the year-ago figure of 0.2%

Profitability & Liquidity Profile; Analysis by Kalkine Group  

Top 10 Shareholders: The top 10 shareholders together form around 69.88% of the total shareholdings, while the top 4 constitutes the maximum holding. Wagner (John) held the maximum number of shares with a percentage holding of 11.97%, followed by Wagner (Denis) holding 11.82%, as also highlighted in the chart below: 

Top 10 Shareholders; Analysis by Kalkine Group 

Risk Analysis:

• The threats of the COVID-19 Pandemic will continue to impact the company’s supply chains, thus exposing the company to logistics delays, lack of availability of raw materials, and an increase in costs of raw materials and services.
• Also, the company may face challenges owing to mounting risks from concurrent changes in technology, and structural shifts post COVID-19.
• The company is exposed to stiff rivalry from competitors developing similar product lines and services. Also, foreign currency fluctuation risks, project delivery delays, changes in government regulations might hinder the company’s business model.

Outlook: The company expects robust growth in bulk haulage business from the resources sector in the CMS segment. Further, higher demand for concrete is expected to drive increased sales in the cement, flyash and aggregates businesses. The company expects ongoing investment in international expansion, with establishing a UK manufacturing and distribution facility (anticipated to complete in FY22). The company remains on track to commercialise its new product lines and strengthen its global foothold with revenue generation from new geographic locations. The prospect for the construction industry in south-east Queensland is promising, and WGN anticipates robust cement volumes in FY22.

Valuation Methodology: EV/Sales 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: The stock of the company went down by ~28.75% in the past six months. The stock has made a 52-week high and low levels of $2.56 and $1.52, respectively. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount as compared to its peers, considering COVID-19 pandemic, logistics delays, lack of availability of raw materials, pricing pressure, etc. For valuation purposes, peers like Adbri Ltd (ASX: ABC), CSR Ltd (ASX: CSR), Boral Ltd. (ASX: BLD), and others have been considered. Considering rise in cash flow from operations, higher revenue base, positive outlook, projects pipeline, decent liquidity position, geographical expansion, indicative upside in valuation, we recommend a ‘Buy’ rating on the stock at the closing price of $1.66, as on 16 November 2021.

WGN 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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