MLG OZ Limited

MLG Details

Raised Capital Through Listing: MLG OZ Limited (ASX: MLG) operates in a diversified business related to mining services in Australia. Its offering includes crusher feed, road maintenance, rehabilitation work, vehicle maintenance, machine and labor hire, and mine site haulage. The company has commenced trading on ASX on 4 May 2021. MLG has raised capital through listing its shares on ASX to repay its debt and funds required for general working capital needs. The company has raised $70.7mn by offering shares at $1.0 per share to the investors. The company has provided consistent growth in its revenue at a CAGR of 22.1% over FY18-FY21E by offering its services to well-established clients in the industry such as Ramelius Resources, BHP, Newmont Goldcorp, and many more.

Revenue Growth (AUD mn) (Source: Company Reports)

1HFY21 Financial Highlights: MLG has reported an increase in its revenue to $120.79mn in 1HFY21 against $101.99mn in 1HFY20, up by 18% on the back of new contracts and extended work packages for existing clients. The company has registered a significant increase in net profit after tax to $7.11mn in 1HFY21 against $3.90mn in 1HFY20. The company has registered a decline in its liquidity position to just $766 as of 31 December 2020 against $1.00mn as of 30 June 2020.    

Key Risks: The company is exposed to commodity prices as it predominantly caters to the resources sector. An adverse change in the prices of base metals or bulk commodities may influence pricing and margins. Shortages of skilled labor and high reliance on third-party materials may influence profitability.

Outlook: MLG is optimistic that increasing mining investments in Australia will continue to support growth. Several of the company’s clients are expected to begin production at new mines that may underpin MLG growth in the near term.

Valuation Methodology: Price/Sales based Relative Valuation Method (Illustrative)

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

^Note, Sales for FY21 is sourced from the Company Prospectus  

*% 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 MLG, which was listed on 4 May 2021 on ASX, gave a return of ~3.05% in the last one week. The current market capitalization of MLG stands at ~$195.19mn as of 14 May 2021. The stock is currently trading above the average 52-weeks’ price level range of ~$1.215-~$1.400. On the technical analysis front, the stock has a support level of ~$1.264 and resistance level of ~$1.401. We have valued the stock using a Price/Sales multiple-based illustrative relative valuation method and arrived at a target price with a correction of low double-digit downside (in % terms). We believe that the company can trade at some premium as compared to its peer median, considering an increase in revenue and profits in 1HFY21. For this purpose, we have taken peers MACA Ltd (ASX: MLD), Qube Holdings Ltd (ASX: QUB), NRW Holdings Ltd (ASX: NWH) to name a few. Considering a robust revenue growth in the past three years, increasing mining investments in Australia, valuations, and current trading levels, we suggest investors to wait for the better levels to enter in the stock and give an “Expensive” rating on the stock at the current market price of $1.350, up by ~0.746% as on 14 May 2021.  

MLG Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Mastermyne Group Limited

MYE Details

An Update on Extension of Contract: Mastermyne Group Limited (ASX: MYE) offers contracting services to the underground long wall mining operations, and industrial products and services in the coalfields and supporting industries of Queensland and New South Wales. MYE has announced an extension for Development and Outbye services for Anglo American’s Aquila Project. MYE has been engaged with the project since August 2019 for roadway development and establishment of the new longwall operation at Aquila Mine. The company has got an extension for the next 12 months till March 2022.

Dividend Distribution Update: MYE has distributed a dividend of AUD 0.0075 to its shareholders. The ex-date for the dividend was on 25 March 2021 and the payment date was on 19 April 2021. 

1HFY21 Financial Highlights: MYE has registered a decline in its revenue from contracts with customers to $110.87mn in 1HFY21 against $136.35mn in 1HFY20. The company has registered a significant decline in profit to $1.95mn in 1HFY21 against $4.34mn in 1HFY20 on the back of higher depreciation and amortization expenses and a decline in revenue. MYE has seen a decline in its liquidity position to $17.44mn as of 31 December 2020, as against $25.36mn as of 30 June 2020.

Liquidity Position (Source: Company Reports)

Key Risks: The company’s profitability depends on the prices of coal, so lower coal prices may impact the profitability of the company.

Outlook: The recent recovery in metallurgical coal prices is expected to uplift the company’s performance. MYE expects increased demand for Australian seaborne metallurgical coal in the medium to long term. The company will remain focused on executing its current order book efficiently and seizing new opportunities as and when they arise, going forward.

Stock Recommendation: The stock of MYE gave returns of ~+4.76% in the last one month and ~-5.52% in the last three months. The current market capitalization of MYE stands at ~$79.12mn as of 14 May 2021. The stock is currently trading slightly below the average 52-weeks’ price level range of ~$0.550-~$0.995. On the technical analysis front, the stock has a support level of ~$0.666 and resistance level of ~$0.833. On a TTM basis, the stock of MYE is trading at an EV/Sales multiple of 0.2x, lower than the industry median (Coal) of 19.8x. Considering an extension of the contract, decline in total liabilities as of 31 December 2020, dividend distribution, and valuation on a TTM basis, we recommend a “Hold” rating on the stock at the current market price of $0.770, up by ~3.355% as on 14 May 2021.

MYE Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Note: 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.

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