Macmahon Holdings Limited

MAH Details

Resignation and Appointment of Company Secretary: Macmahon Holdings Limited (MAH) provides mining services to miners across Australia and Southeast Asia. The company’s services include contract mining, civil engineering and quarrying. As announced on 2 December 2021, the company announced the resignation of Mr. Greg Gettingby from the position of the Company Secretary, which will be effective from 22 January 2022. In addition, MAH has appointed Ms. Sophie Raven to the position.

Earn-Out Payment for GBF Acquisition:

• In the month of October 2021, the company has set an earn-out of $23.5 million under the purchase agreement related to the acquisition of the GBF Underground Mining Group in 2019.
• MAH added that the earn-out payment comprised $12 million in October 2021, and the remaining amount is to be split between cash payable in FY23 and Macmahon shares to be purchased on-market and subject to a holding lock until July 2022.

FY21 Financial Summary:

• During the year, the company has maintained a track record of earnings growth, and the numbers were in line with the reiterated guidance. The company experienced a slight fall of 2% in topline to $1,351 million against $1,380 million in FY20.
• The company recognized Deferred Tax Asset of $17.3 million resulting from a change in the Australian income tax legislation announced in the October 2020 Federal budget. This helped MAH in increasing statutory Net Profit After Tax by 19% to $77.2 million.
• MAH possesses a solid order book of $5.0 billion and a significant tender pipeline of $7.1 billion.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks:

• COVID-19: The company experienced the least impact of the pandemic on its financials during the year. However, there is a risk that the prolonged continuation of these circumstances worldwide may leave a material impact on the Group in the upcoming period.
• Commodity Price: The company has indirect exposure to movements in commodity prices, which can be beyond the company’s control.

Outlook:

• For FY22, the company is expecting to report revenue in the range of $1.4 billion – $1.5 billion and underlying EBIT(A) in the ambit of $95 million – $105 million. The company has already secured $1.3 billion of FY22 revenue.
• The company is in a decent position to focus its business development efforts on lower capital and higher return projects in Underground and Mining Support Services.

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 MAH has been corrected by ~1.35% and ~10.97% in the past one and nine months, respectively. The stock is trading near to its 52-week low level of $0.170, offering a decent opportunity for accumulation. The stock has been valued using a P/E multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight discount to its peers’ average P/E multiple, considering the COVID-19 disruptions, global commodity cues, and high debt-to-equity ratio. For the purpose of valuation, peers such as MACA Ltd (ASX: MLD), Perenti Global Ltd (ASX: PRN), and Iluka Resources Ltd (ASX: ILU) have been considered. Considering the expected upside in valuation, solid order book, decent liquidity position and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the closing price of $0.180 as on 23 December 2021.

MAH Daily Technical Chart, Data Source: REFINITIV  

Medusa Mining Limited

MML Details

September 2021 Quarter Updates: Medusa Mining Limited (ASX: MML) is engaged in mineral exploration, evaluation, development and mining/production of gold. For the quarter ended 30 September 2021, the company recorded production of 23,223 ounces at an average head grade of 5.38 g/t gold against 22,396 ounces at 5.89 g/t gold in June 2021 quarter.

• All-In-Sustaining-Costs for the quarter stood at US$1,242 per ounce as compared to US$1,594 per ounce in June 2021 quarter.
• At the end of the quarter, the company had cash and cash equivalents of US$75.5 million against US$72.2 million at the end of June quarter.

Production (Source: Analysis by Kalkine Group)

Key Risks:

• Gold Price Risk: The company’s operational and financial performance could be impacted by the adverse movement in the prices of gold globally as the company earns a major portion of revenue from the sale of gold.
• Regulatory Risk: MML is exposed to a more complex regulatory environment; any failure in the compliances could lead the business to fines, penalties, etc.

Outlook: For FY22, the company expects to produce gold in the range of 90,000 to 95,000 ounces at an All-In-Sustaining-Costs of between US$1,250 to US$1,300 per ounce.

Stock Recommendation: The stock of MML has been corrected by ~14.19% and ~10.89% in the past one and three months, respectively. The stock is trading near to its 52-week low level of $0.655, offering a decent opportunity for the accumulation. In addition, the stock is trading at P/BV multiple of 0.5x as compared to the industry median (Basic Materials) of 2.4x on a TTM basis. Thus, it can be said that the stock is undervalued at the current trading levels. Considering the valuation on a TTM basis, rising gold production, increasing margins, current trading levels and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.692 as on 23 December 2021, 10:40 AM (GMT+10), Sydney, Eastern Australia.

MML 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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