Monadelphous Group Limited

MND Details

Demand Surge in Resources & Energy Sectors Driving Growth: Monadelphous Group Limited (ASX: MND) provides maintenance, construction, and industrial services to the energy, infrastructure, and resources sectors.

• The revenue increased to ~$1,065 million, up by ~12.3% on pcp in 1HFY22 (ended 31 December 2021). The Maintenance and Industrial Services revenue stood at a record high of ~$596.1 million, up by ~21.3% during the period.
• MND recorded an NPAT of ~$30.1 million, an increase of ~17.7% YoY during the reporting period.
• MND obtained ~$860 million of new contracts and extensions from the start of FY22 across energy, resources, infrastructure, and overseas markets.
• In Chile, MND increased its stake from ~75% to ~90% in the Buildtek business which continued to secure new construction contracts and achieved more than ~50% revenue growth. In the last two years.
• MND exited 1HFY22 with a cash balance of ~$175.3 million and a robust cash flow conversion rate of ~104% for six months.
• The Board has resolved to pay a fully franked interim dividend of ~24 cents per share (cps).

Revenue Growth in Divisions; (Analysis by Kalkine Group) 

Key Risks: The Company continued to face labour cost and productivity pressures, with demand for labour in the industry remaining strong and COVID-19 restrictions constraining labour supply and mobility.

Core Markets’ Outlook:

• The outlook for MND’s core markets is robustly driven by demand surge for services in the energy and resources sectors, new contracts won by Buildtek business, and MND’s JV partners, and increased activity levels experienced in Papua New Guinea.
• The growth prospects for the iron ore industry in Australia and the demand for battery metals are forecasted to remain buoyant. MND expects a robust return of construction activity in FY23.

Revenue Expectations & FY22 Plans:

• The company expects FY22 revenue to be ~5 -10% lower than FY21 because of the timing of new major projects.
• MND is accelerating its recruitment drive and upgrading the talent management system to effectively mobilise resources later in 2022 in search of its departed alumni and increase the skilled workforce. MND has initiated an organisational review to track its structure is suitably aligned to deliver against its strategic targets.

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 MND gave a positive return of ~30.41% in the past month and a positive return of ~25.32% in the past three months. The stock is currently trading towards its 52-weeks’ high level of $12.930. The stock of MND has a support level of ~$9.67 and a resistance level of ~$12.63. The stock has been valued using the Price to Earnings-multiple-based illustrative relative valuation method and arrived at a target price with a correction of a single-digit (in % terms). The company might trade at a slight premium than its peers’ mean P/E multiple, considering the robust outlook for core markets, significant contract wins, and turnaround in construction activity in FY23. For this purpose of valuation, a few peers like Downer EDI Ltd (ASX: DOW), MAAS Group Holdings Ltd (ASX: MGH), SRG Global Ltd (ASX: SRG), and others have been considered. Considering the high trading levels, decent returns in the past months, an indicative downside in valuation, and associated key business risks, we suggest investors to book profit and give a ‘Sell’ rating on the stock at the current market price of $11.580, as of 24 February 2022, 1:36 PM (GMT+10), Sydney, Eastern Australia.

MND Daily Technical Chart, Data Source: REFINITIV  

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: 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.

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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