Monadelphous Group Limited

Acquired 75% stake in Buildtek SpA and Maqrent SpA: Monadelphous Group Limited (ASX: MND) is a diversified services company operating in the resources, energy and infrastructure sectors. On 14 November 2019, MND announced its acquisition of 75% stake in both Buildtek SpA (“Buildtek”) and Maqrent SpA (“Maqrent”) at a price consideration of CLP 5,000 million (~$9.5 million) cash, with an option to purchase the remaining 25 per cent in three years’ time.

FY19 Operating Highlights for the period ended 30 June 2019:MND announced its full-year results for FY19, wherein the company reported revenue at $1,608.3 million, down 9.85% on FY18 revenue of $1,784 million. Underlying NPAT came in at $57.4 million as compared to $71.5 million in FY18. During the financial year, the company reported a decent yoy growth of 18.7% in maintenance & industrial services, while the engineering construction segment witnessed a de-growth of 34% as compared to FY18.During FY19, the company secured $1.35 billion of new contracts and extensions to date, including $400 million secured post FY19. Within the engineering & construction segment, the business secured a major construction contract on BHP’s South Flank, and post year-end, MND secured Rio Tinto’s West Angelas and Albemarle Lithium’s Kemerton projects.


FY19 Financial Highlights (Source: Company Reports)

Outlook:As per the guidance for FY20, the company expects improvement in core market conditions to drive the solid pipeline of opportunities, followed by a positive prospect from LNG segment. The company reported improved developmental activities from iron ore and lithium segment. Further, the company highlighted that FY20 revenue is dependent on the timing of secured work and volume and timing of future awards. The company expects FY20 to see margin pressure due to high levels of competition, customer price sensitivity, and expectations for cost-competitive delivery, followed by pressure across the labour market.

Stock Recommendation: The stock of MND is quoting at $15.710 with a market capitalization of $1.47 billion. At the current market price, the stock is available at an enterprise value (EV) to sales multiple of 0.8x on trailing twelve months (TTM) basis as compared to the industry median of 1.6x. The stock has corrected 9.42% and 15.1% in the last three-months and six-months, respectively. At the current market price, the stock is trading slightly below the average price of 52-week low and high of $12.510 and $20.070, respectively. The company is expecting improvement in developmental activities from iron ore and lithium segment in FY20. Considering the improvement in core market conditions and recent acquisitions coupled with recent movements in stock price, valuation, etc., we recommend a ‘Buy’ rating on the stock at the current market price $15.710, up 0.834% as on 14 November 2019.
 

Emeco Holdings Limited

Operating Efficiency to Drive Profitability: Emeco Holdings Limited (ASX: EHL) is engaged in the provision of earthmoving equipment services.

FY19 Financial Highlights for the period ending 30 June 2019: EHL reported its FY19 annual results, wherein the company reported revenue at $464.5 million as compared to $380.9 million in FY18. The company posted a strong yoy growth of 214% in NPAT to $63 million. The Company generated operating EBIT of $125 million and EBITDA of $214 million during FY19. Operating EBITDA margin increased 590 basis points to 46.1%, driven by higher operating utilisation and rates, cost-efficiency, and realising the benefits from the Force and Matilda acquisitions.

FY19 Financial Highlights (Source: Company Reports)

Guidance: As per the guidance, EHL expects the first half of FY20 operating EBITDA to come in the range of $118 million and $120 million, with further earnings growth expected in the second half. The company expects an addition of $25 million in EBITDA this financial year from the recent acquisitions. In the Force workshops for FY20, the company will continue to concentrate on increasing throughput in the workshops, both with the internal fleet requirements and for the customers.

Stock Recommendation: The stock of EHL is quoting at $2.050 with a market capitalization of $601.18 million. At the current market price, the stock is trading towards the lower band of its 52-week trading range of $1.625 to $3.150. The stock has generated returns of -12.26% and 1.36% in the last three and six months, respectively. The stock is available at EV to EBITDA multiple of 4.6x on TTM basis as compared to the industry median of 6.7x. Price to cash flow multiple for the stock stands at 3.6x on TTM basis as compared to the industry median 6.2x. During FY19, EHL delivered a healthy EBITDA margin of 42.8% as compared to the industry median of 13%, while the return on equity stood at 19.2%, higher than the industry median 12.9%. Considering the operational efficiency, benefits from recent acquisitions, improved profitability, decent guidance for 1HFY20, and current valuations, we recommend a “Speculative Buy” rating on the stock at the current market price $2.050, up 10.215% as on 14 November 2019 on account of the guidance for H1FY20 in Annual General Meeting.

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