MAAS Group Holdings Limited

MGH Details

MAAS Group Holdings Limited (ASX: MGH) is an Australian company and provides construction materials, equipment and services. It covers segments like Real Estate; Civil, Construction and Hire; Manufacturing; and Construction Materials.

Acquisition Updates: On 21^st December 2021, MGH entered into a binding agreement to acquire Brett Harvey Construction Pty Limited. The acquisition will strengthen vertically integrated house and land package delivery capability within MGH’s growing Real Estate segment.

Top Line and Bottom Line FY21:

• Total Revenue: The company’s total revenue substantially increased from reported as ~$277.56 million in FY21 versus ~$193.44 million in FY20.
• Profitability/Losses: The company also increased its net profits of ~$20.94 million in FY20 to ~$34.74 million in FY21.
• Cash Position: The company closed its accounts with a cash balance of ~$17.99 million at the end of 30^th June 2021 versus ~$12.45 million at the end of 30^th June 2020.

Cash Balance Highlights (Source: Analysis by Kalkine Group)

Key Risks: The company is vulnerable to the risks associated with the impacts of COVID-19 and the new variant Omicron and affects the employees, operational functions, and thereby profitability.

Outlook: The Brett Harvey Construction Pty Limited acquisition will contribute towards 2HFY22 earnings and expects to contribute ~$2.0 - ~$2.5 million pro-forma EBITDA on an annualized basis. Another acquisition, of two additional Central Queensland quarries (current 190,000 tonnes per annum with approved annual tonnage of two million tonnes) was expected to happen in January 2022 and will allow MGH to continue grow and realize the synergy in its Central Queensland Construction Materials business.

As per its November 2021 update, its pro-forma EBITDA for FY22 is expected to be in a range of ~$115-$125 million (predominantly organic growth) versus ~$75.9 million in FY21. More than 200 settlements in its residential segments are expected in 2HFY22 with significant price escalation

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:  The stock of the company has been corrected by ~4.12% in the past six months. Currently, the stock is trading near the average of its 52-week low and high levels of $6.32 and $2.55, respectively. The stock has been valued using the EV/ based relative valuation method and arrived at a target price with an upside of low double-digit (in % terms). After considering the positive EBITDA outlook and EBITDA contributions from recent acquisitions, the company can trade at a slight premium to its peers. For the purpose of its valuation, peers like Monadelphous Group Ltd (ASX: MND), Reliance Worldwide Corporation Ltd. (ASX: RWC), Fluence Corporation Ltd (ASX: FLC), and others have been considered. Considering the expected cyclical effect of Omicron COVID-19, labor constraints, negative EBITDA margin, indicative upside in the valuation, reducing debt-to-equity ratio, current trading levels, rise in net profits in FY21, and key risks associated with the business, we give a “Buy” rating on the stock at the current market price of $4.250, 10:50 AM (GMT+10), Sydney, Eastern Australia, as on 16 February 2022.

MGH Daily Technical Chart, Data Source: REFINITIV

Decmil Group Limited

DCG Details

Sunraysia Update: Decmil Group Limited (ASX: DCG) is an Australian company that caters to the infrastructure, resources, energy, and construction sectors across Australia by providing design, engineering, construction and maintenance engineering construction services. On 4^th February 2022, DCG has received Substantial Completion Certificate for its EPC contract completion of Sunraysia Solar Farm. This will facilitate 5-years O&M (Operations and Maintenance).

Major Contracts Updates:

• The company secured government contracts worth ~$27.8 million in total, which includes:
• ~$23.3 million with Main Roads in Western Australia
• ~$4.5 million with Queensland Department of Transport and Main Roads
• Others:
• Ryan’s Corner Contract to start and access date will be in late January 2022.
• Another contract of ~$18.1 million to build a new Port Headland Community Centre building complex from Town of Port Headland has been received and it is scheduled to be completed in March 2023.

FY21 Top & Bottom-line Highlights:

• Revenue: Due to COVID-19 delays shift in contracts, the company reported a reduction of ~31% Y-o-Y in its normalized revenue of ~$313.4 million versus ~$451 million.
• Profitability: Normalized gross margin of ~10.8% was reported along with the statutory net losses after tax of ~$11.5 million in FY21 versus ~$95.7 million for FY20.
• Cash Balance: The company closed its accounts with a cash balance of ~$9.7 million at the end of 30^th June 2021 versus ~$43.9 million in FY20.

Cash Balance Highlights (Source: Analysis by Kalkine Group)

Key Risks: Due to COVID-19 restrictions and lockdowns the company might face project delays and halts in the contracts’ completion. The company is subject to the risks

Outlook: With the multiple contracts in line of ~$570 million, the company expects a total revenue of ~$500 million in FY22, along with a gross margin of ~8-9%.

Stock Recommendation: The stock of DCG has been corrected by ~21.62% and ~18.31% in the past three months and six months, respectively. The stock is trading below its 52-week low-high average of $0.280 - $0.615, respectively. On a TTM basis, the stock of DCG is trading at a P/B multiple of 0.30x, lower than the industry’s mean (Construction and Engineering) of 4.3x, thus seems to be undervalued. Considering the contracts in line, current trading levels, valuation on a TTM basis, completion of solar farm and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the closing market price of $0.290, as on 16^th February 2022.

DCG 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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