Aurizon Holdings Limited

AZJ Details

Business Update: Aurizon Holdings Limited (ASX: AZJ) provides integrated supply chain services that include rail and road transportation, port services, and material handling for its industrial clients. As per a recent update, the company’s director Andrew Harding has undergone a change of interest in the company and has acquired 1,000,000 ordinary shares.

Preliminary Response to ICAR:

On 12 November 2021, the company has provided its preliminary report & response on the Initial Capacity Assessment Report (ICAR) to the Queensland Competition Authority (QCA). The report states the company’s initial views on the reasons for capacity deficits, which were identified in the ICAR, and also includes the proposed solutions. The report triggers an immediate increase from 5.9% to 6.3% in the WACC, that Aurizon Network earns in respect of its ownership and operation of the Central Queensland Coal Network.

FY21 Performance Update:

• During the year, the company reported total revenues of $3,019.3 million, compared to revenues of $3,064.6 million in FY20.
• However, there was an increase in EBITDA by 1% to $1,482.2 million, owing to decent performance in the Network and Bulk segment.
• Free cash flow also increased by 1% to $734.4 million, driven by EBITDA growth and net proceeds from the sale of the Acacia Ridge Intermodal Terminal.
• It ended the year with a substantial jump in cash position to $148.8 million as of 30 June 2021, compared to $29.3 million as of 30 June 2020.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks: The demand for the company's services might get impacted by the change in business needs for its clients, which can impact profitability.

Outlook: The Group has provided underlying EBITDA guidance of $1,425 - $1,500 million in FY22 and has projected capital expenditure of $475 million to $525 million. This has been estimated after taken into consideration 5% volume growth of coal and lower costs but offset by lower contracted rates, and revenue growth from Bulk segment.

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: As per ASX, the stock of AZJ is trading below its 52-weeks’ average levels of $3.350-$4.440. The stock of AZJ gave a positive return of ~1.32% in the past one week and a negative return of ~17.38% in the past one year. 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 (in percentage terms). The company might trade at a slight discount to its peers, considering the decline in revenue, and high leverage on the balance sheet. For the purpose of valuation, few peers like Qube Holdings Ltd (ASX: QUB), Transurban Group (ASX: TCL), Lindsay Australia Ltd (ASX: LAU) have been considered. Considering the expected upside in valuation & current trading levels, decent EBITDA performance in FY21, positive outlook and increase in cash reserves, we recommend a ‘Buy’ rating on the stock at the current market price of $3.42, as on 24 November 2021, 10:31 AM (GMT+10), Sydney, Eastern Australia.

AZJ Daily Technical Chart, Data Source: REFINITIV

MAAS Group Holdings Ltd

MGH Details

Change of Director Interest: MAAS Group Holdings Ltd (ASX: MGH) is engaged in the business of construction materials, equipment, and service provider. It has multiple sector exposure across the civil, infrastructure, mining & real estate markets. As per a recent update, the company’s director Wesley Jon Maas has undergone a change of interest in the company and has acquired 2,486,364 ordinary shares for a total consideration of $12,795,322.50.

FY21 Performance Overview:

• The company reported decent uptick in statutory revenue by 43.4% to $277.6 million in FY21, when compared to the prior year.
• Statutory NPAT grew by 67.1% to $34.6 million in FY21 on the back of decent business growth across all the businesses.
• It ended the year with cash & equivalents of $17.99 million as of 30 June 2021, compared to cash levels of $12.45 million as of 30 June 2020.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks: The company’s line of business exposes it to safety risks for its employees who have to engage in complex projects.

Outlook:  The Group expects the positive growth momentum to carry into FY22 performance and expects Proforma EBITDA to be in the range of $115 - $125 million in FY22, compared to $75.9 million in FY21. It further expects the results in FY22 would be skewed towards the second half of the year, driven by the settlement profile of residential property, commercial property milestones, and increased quarry sales.

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 above its 52-weeks’ average levels of $2.300-$6.320. The stock of MGH gave a negative return of ~10.41% in the past six months. The stock has been valued using an EV/EBITDA multiple-based illustrative relative valuation method and arrived at a target price of low double-digit (in percentage terms). The company might trade at a slight premium to its peers, considering the impressive financial performance, and positive guidance. For the purpose of valuation, few peers like CIMIC Group Ltd (ASX: CIM), Monadelphous Group Ltd (ASX: MND), Service Stream Ltd (ASX: SSM) have been considered. Considering the expected upside in valuation, impressive growth in top-line & bottom-line, increase in cash levels and optimistic guidance, we recommend a ‘Buy’ rating on the stock at the current market price of $4.25, as on 24 November 2021, 10:32 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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