Wagners Holding Company Limited

Secured ~$35 million Contract: Wagners Holding Company Limited (ASX: WGN) is an Australian construction materials and services provider, operating in domestic and international markets. On 28 November 2019, Wagners announced that it has secured a contract with Adani Mining Pty Ltd for the production and haulage of quarry materials for Carmichael mine and rail projects with an expected project value of around $35 million. The project work is divided in two stages.
Changes in Director’s Interest: On 22 November 2019, the company’s Director, John Wagner acquired 14,201,056 of ordinary shares in the company at $1.55 per ordinary share. Mr. John Wagner now holds 102,957,631 shares. Another Director, Denis Wagner also acquired 14,201,056 ordinary shares at a price of $1.55 per ordinary share, taking its total number of shares to 102,957,631.

Dispute with Boral: WGN is in dispute with Boral Limited (ASX: BLD) in relation to the Cement Supply Agreement (CSA) between both the parties. Pursuant to the CSA, BLD was required to purchase a minimum volume of cement from the company on an annual basis at a determined price, however, BLD issued a pricing notice to the company which purports to refer to market pricing evidence in the form of an unsigned offer from a long established supplier of cement within South East Queensland, offering a price significantly lower than that currently charged by the company. As a result of this, WGN elected to suspend supply of cement products to BLD and filed a statement of claim in the Supreme Court against BLD. The matter was earlier set down for trial on 28 November 2019, however, has now been adjourned to 6 February 2020.

Successful Completion of Entitlement Offer: On 29 October 2019, the company announced a 1 for 6.25 non-renounceable rights issue for ordinary Wagners shares to raise around $40.0 million which shall be used by the company to repay debt and strengthen the balance sheet for future near-term growth opportunities. Under the Entitlement Offer, the company received valid applications of around $15.4 million. This, along with the participation of the Wagner family of approximately $22.0 million, took the participation in the offer to 93.4%. The remaining $2.7 million of the Entitlement Offer is taken up by Morgans Corporate Limited (Underwriter).

FY19 Financial Highlights: For the year ended 30 June 2019, the company reported 200% growth in transport revenue, driven by the strong performance from mining contracts in N/W Queensland. The group revenue was up by 6.5% to $239.8 million, as compared to last financial year. The business achieved pro forma earnings before interest and taxes (EBIT) of $25.6 million. The company’s NGBM (New Generation Building Materials) business achieved a revenue result of $29.3 million, consistent with the last year’s results. The company also witnessed an overall increase in its CMS business, driven by significant growth in its bulk transport haulage business. The company’s financial results were in-line with the guidance that it provided to the market in March 2019. During the year, the company paid an interim dividend of 2.2 cents per share and decided not to declare a final dividend.
 

FY19 Results Summary (Source: Company Reports)

Stock Recommendation: On a year to date basis, the stock has provided a negative return of 34.38% on ASX, however, in the last one month, the stock price has increased by 19.18%. The company has EV/EBITDA ratio of 12.7%, which is higher than the Construction materials industry median of 7.8%.  Considering the company's new material contract signed with Adani, decent performance in FY19, ongoing dispute with Boral Limited and current trading levels, we have a watch stance on the stock at the current market price of 2.200, up by 5.769% as on 29 November 2019, owing to the recently secured $35 million contract with Adani Mining Pty Ltd.

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