MAAS Group Holdings Limited

MGH Details

Key Positives:

Higher Gross Margin (27.6% in H1FY22 Vs 13.0% of Industry Median), Higher Current Ratio (1.78x in H1FY22 Vs 1.21x of Industry Median)

Key Negatives:

Lower ROE (4.5% in H1FY22 Vs 5.4% of Industry Median), Negative EBITDA Margin (-25.4% in H1FY22)

Key Investment Risks:

Operational Risk, Rising Labor Cost, COVID-19 Risk, Competition Risk, etc.

Recent Development: MASS Group Holdings Limited (ASX: MGH) is one of the independent Australia-based construction materials, equipment, and services providers with exposure to civil, construction, infrastructure, and real estate markets.

• MGH has acquired a significant stake in the strategic land parcel at Yatala in SouthEast Queensland, the 57-hectare site holding rental earnings, and provides future development opportunities.
• For FY22, the company anticipates EBITDA of between $115 to $125 million.
• MGH possesses multiple projects under pipeline with 75% of targeted growth locked in FY23 in the Civil Construction & Hire segment.
• The company reported a track record of organic growth accelerated by acquisitions; the below image shows the financial highlights of H1FY22 Vs H1FY21.

Financial highlights of H1FY22 Vs H1FY21 (Source: Analysis by Kalkine Group)

Key Risks: Failure to win new contracts or delay in starting or finishing up existing contracts act as a risk to its future growth. Further, managing labor costs, retaining staff, and operational issue are other risk company face.

Outlook: There are many other business development projects under pipeline, below image provides a brief overview of some important projects that will drive the company’s future growth.

Future Growth Drivers, (Source: Analysis by Kalkine Group)

Valuation Methodology: P/E 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 MGH is currently trading near its 52-week low level of $3.890, providing a decent opportunity for accumulation. The stock has been corrected by ~8.47% in the past month. The stock has been valued using a Price/Earnings multiple-based illustrative relative valuation and arrived at a target of low double-digit upside (in % terms). The company can trade at a slight discount to its peers, considering the inflation impacting financial market returns, interest rate hikes, competition in the industry, etc. For valuation, peers such as Johns Lyng Group Ltd (ASX: JLG), NRW Holdings Ltd (ASX: NWH), and Service Stream Ltd (ASX: SSM) have been considered. Given the projects in the pipeline, expected FY22 EBITDA levels, strong H1FY22 results, current trading levels, and expected upside in valuation,we recommend a ‘Buy’ rating on this stock at the closing market price of $3.910, down by ~4.166% as of 15 June 2022.

Markets are trading in a highly volatile zone currently due to certain macroeconomic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

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 for 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 a 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 price.

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